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The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications

  • Olivier Coibion
  • Yuriy Gorodnichenko
  • Gee Hee Hong

We study the cyclical properties of sales, regular price changes and average prices paid by consumers (“effective” prices) using data on prices and quantities sold for numerous retailers across many U.S. metropolitan areas. Inflation in the effective prices paid by consumers declines significantly with higher unemployment while little change occurs in the inflation rate of prices posted by retailers. This difference reflects the reallocation of household expenditures across retailers, a feature of the data which we document and quantify, rather than sales. We propose a simple model with household store-switching and assess its implications for business cycles and policymakers.

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Paper provided by Bank of Canada in its series Working Papers with number 13-1.

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Length: 65 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:bca:bocawp:13-1
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Web page: http://www.bank-banque-canada.ca/

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  2. Guimarães, Bernardo & Sheedy, Kevin D., 2008. "Sales and Monetary Policy," CEPR Discussion Papers 6940, C.E.P.R. Discussion Papers.
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  18. Mark Aguiar & Erik Hurst & Loukas Karabarbounis, 2013. "Time Use during the Great Recession," American Economic Review, American Economic Association, vol. 103(5), pages 1664-96, August.
  19. Robert C. Feenstra & Matthew D. Shapiro, 2003. "Introduction to "Scanner Data and Price Indexes"," NBER Chapters, in: Scanner Data and Price Indexes, pages 1-14 National Bureau of Economic Research, Inc.
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