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Price, sales, and the business cycle: a time series principal component analysis

Author

Listed:
  • Fernando Borraz

    (Banco Central del Uruguay)

  • Giacomo Livan

    (University College London)

  • Anahí Rodríguez-Martínez

    (Centro de Estudios Monetarios Latinoamericano)

  • Pablo Picardo

    (Banco Central del Uruguay)

Abstract

The main contribution of this work consist on studying sales behavior and their relationship with local market conditions like labor market indicators through a time series principal component analysis. We study the correlation structure of a large database on prices and found that all product sectors share a common correlation structure and the highest correlation and significance is achieved between employment variation and the first principal component, mostly in the second week of the following month. Sales or promotions, are a channel for price flexibility because firms can use them to change effective prices keeping sticky reference prices. We use a rich database of retail prices from Uruguay to characterize prices' flexibility, the behavior of sales, and their relationship with local market conditions like labor market indicators. Finally, we find a positive and significant relationship between sales and unemployment and perform a time series principal component analysis to study these relationships.

Suggested Citation

  • Fernando Borraz & Giacomo Livan & Anahí Rodríguez-Martínez & Pablo Picardo, 2020. "Price, sales, and the business cycle: a time series principal component analysis," Documentos de trabajo 2020002, Banco Central del Uruguay.
  • Handle: RePEc:bku:doctra:2020002
    as

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    References listed on IDEAS

    as
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    7. Anderson, Eric & Malin, Benjamin A. & Nakamura, Emi & Simester, Duncan & Steinsson, Jón, 2017. "Informational rigidities and the stickiness of temporary Sales," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 64-83.
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    10. Olivier Coibion & Yuriy Gorodnichenko & Gee Hee Hong, 2015. "The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications," American Economic Review, American Economic Association, vol. 105(3), pages 993-1029, March.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    price rigidity; sales; unemployment; principal component analysis;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

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