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Price selection

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  • Carvalho, Carlos
  • Kryvtsov, Oleksiy

Abstract

Price selection is a simple, model-free measure of selection in price setting. It exploits comovement between inflation and the level from which adjusting prices departed. Prices that increase from lower-than-usual levels tend to push inflation above average. Using micro data for the United Kingdom, the United States, and Canada, we find strong price selection at disaggregate levels. Price selection is stronger for goods with less frequent price changes or with larger average price changes. Aggregate price selection is considerably weaker. A multisector sticky-price model accounts well for this evidence and demonstrates a monotone relationship between price selection and monetary non-neutrality.

Suggested Citation

  • Carvalho, Carlos & Kryvtsov, Oleksiy, 2021. "Price selection," Journal of Monetary Economics, Elsevier, vol. 122(C), pages 56-75.
  • Handle: RePEc:eee:moneco:v:122:y:2021:i:c:p:56-75
    DOI: 10.1016/j.jmoneco.2021.07.003
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    Cited by:

    1. Julio Blanco & Javier Cravino, 2018. "Price Rigidities and the Relative PPP," 2018 Meeting Papers 346, Society for Economic Dynamics.
    2. Erwan Gautier, Hervé Le Bihan, 2018. "Shocks vs Menu Costs: Patterns of Price Rigidity in an Estimated Multi-Sector Menu-Cost Model," Working papers 682, Banque de France.
    3. Raphael Auer & Ariel Burstein & Sarah M. Lein, 2021. "Exchange Rates and Prices: Evidence from the 2015 Swiss Franc Appreciation," American Economic Review, American Economic Association, vol. 111(2), pages 652-686, February.

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    More about this item

    Keywords

    Consumer price index; Inflation; Prices; Selection effect; Money non-neutrality;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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