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Dynamics of the U.S. price distribution

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  • Berger, David
  • Vavra, Joseph

Abstract

We use microdata underlying U.S. consumer, producer and import price indices to document how the distribution of price changes evolves over time. Two striking features characterize pricing across all three datasets: (1) Frequency of price adjustments is countercyclical. (2) Frequency of price adjustments is correlated with variance. Conversely, other statistics that have received recent attention, like kurtosis, do not exhibit uniform patterns across our data sets. What implications do our empirical results have for monetary policy? Using a flexible accounting framework that collapses the high-dimensional distribution of price changes into a single measure of aggregate price flexibility, we show that flexibility is highly variable and countercyclical.

Suggested Citation

  • Berger, David & Vavra, Joseph, 2018. "Dynamics of the U.S. price distribution," European Economic Review, Elsevier, vol. 103(C), pages 60-82.
  • Handle: RePEc:eee:eecrev:v:103:y:2018:i:c:p:60-82
    DOI: 10.1016/j.euroecorev.2018.01.004
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    Cited by:

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    2. Bart Hobijn & Fernanda Nechio & Adam Hale Shapiro, 2020. "Using Brexit To Identify the Nature of Price Rigidities," NBER Chapters, in: NBER International Seminar on Macroeconomics 2020, National Bureau of Economic Research, Inc.
    3. Bachmann, Rüdiger & Born, Benjamin & Elstner, Steffen & Grimme, Christian, 2019. "Time-varying business volatility and the price setting of firms," Journal of Monetary Economics, Elsevier, vol. 101(C), pages 82-99.
    4. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta†Eksten & Stephen J. Terry, 2018. "Really Uncertain Business Cycles," Econometrica, Econometric Society, vol. 86(3), pages 1031-1065, May.
    5. Emi Nakamura & Jón Steinsson, 2013. "Price Rigidity: Microeconomic Evidence and Macroeconomic Implications," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 133-163, May.
    6. Scott R. Baker & Nicholas Bloom & Stephen J. Terry, 2020. "Using Disasters to Estimate the Impact of Uncertainty," NBER Working Papers 27167, National Bureau of Economic Research, Inc.
    7. Fernando Alvarez & Francesco Lippi & Aleksei Oskolkov, 2020. "The Macroeconomics of Sticky Prices with Generalized Hazard Functions," EIEF Working Papers Series 2017, Einaudi Institute for Economics and Finance (EIEF), revised Jun 2020.
    8. Ruediger Bachmann & Giuseppe Moscarini, 2011. "Business Cycles and Endogenous Uncertainty," 2011 Meeting Papers 36, Society for Economic Dynamics.
    9. Nicoletta Berardi & Erwan Gautier & Hervé Le Bihan, 2015. "More Facts about Prices: France Before and During the Great Recession," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(8), pages 1465-1502, December.
    10. Fernando E. Alvarez & Aleksei Oskolkov & Francesco Lippi, 2020. "The Macroeconomics of Sticky Prices with Generalized Hazard Functions," Working Papers 2020-90, Becker Friedman Institute for Research In Economics.
    11. Joseph Vavra, 2011. "Inflation Dynamics and Time-Varying Uncertainty: New Evidence and an Ss Interpretation," 2011 Meeting Papers 126, Society for Economic Dynamics.
    12. Giulietti, Monica & Otero, Jesús & Waterson, Michael, 2020. "Rigidities and adjustments of daily prices to costs: Evidence from supermarket data," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
    13. Mehmet Balcilar & Zeynel Abidin Ozdemir, 2020. "A re-examination of growth and growth uncertainty relationship in a stochastic volatility in the mean model with time-varying parameters," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(3), pages 611-641, August.
    14. Scott R. Baker & Nicholas Bloom, 2013. "Does Uncertainty Reduce Growth? Using Disasters as Natural Experiments," CEP Discussion Papers dp1243, Centre for Economic Performance, LSE.
    15. Can Tian, 2012. "Riskiness Choice and Endogenous Productivity Dispersion over the Business Cycle," PIER Working Paper Archive 12-025, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    16. Gopinath, Gita & Itskhoki, Oleg & Neiman, Brent, 2012. "Trade Prices and the Global Trade Collapse of 2008–09," Scholarly Articles 11988099, Harvard University Department of Economics.

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    More about this item

    Keywords

    Price dispersion; Price rigidity; Price distributions; Uncertainty; Business cycles; Inflation;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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