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Price dispersion and inflation: new facts and theoretical implications

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  • Viacheslav Sheremirov

Abstract

From a macroeconomic perspective, price rigidity is often perceived to be an important source of price dispersion, with significant implications for the dynamic properties of aggregate variables, welfare calculations, and the design of optimal policy. For instance, in standard New Keynesian models, the key cost of business cycles stems from the price dispersion resulting from firms' inability to adjust prices instantaneously. However, different macroeconomic models make conflicting predictions about the level of price dispersion, as well as about its dynamic properties and sensitivity to inflation. These contrasting predictions can help us to discriminate across alternative models. This paper examines the link between price dispersion and inflation, and the role of sales in this relationship.

Suggested Citation

  • Viacheslav Sheremirov, 2015. "Price dispersion and inflation: new facts and theoretical implications," Working Papers 15-10, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:15-10
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    Cited by:

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    2. Guido Ascari & Paolo Bonomolo & Qazi Haque, 2023. "The Long-Run Phillips Curve is ... a Curve," Working Papers 789, DNB.
    3. Matthias Meier & Timo Reinelt, 2020. "Monetary Policy,Markup Dispersion, and Aggregate TFP," CRC TR 224 Discussion Paper Series crctr224_2020_161, University of Bonn and University of Mannheim, Germany.
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    5. Takushi Kurozumi & Willem Van Zandweghe, 2023. "A Theory of Intrinsic Inflation Persistence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(8), pages 1961-2000, December.
    6. Ray, Sourav & Snir, Avichai & Levy, Daniel, 2023. "Retail Pricing Format and Rigidity of Regular Prices," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-1.
    7. Emi Nakamura & Jón Steinsson & Patrick Sun & Daniel Villar, 2018. "The Elusive Costs of Inflation: Price Dispersion during the U.S. Great Inflation," The Quarterly Journal of Economics, Oxford University Press, vol. 133(4), pages 1933-1980.
    8. Javier Garcia Cicco & Patricio Goldstein & Federico Sturzenegger, 2023. "Permanent and Transitory Monetary Shocks around the World," Working Papers 275, Red Nacional de Investigadores en Economía (RedNIE).
    9. Kozo Ueda & Kota Watanabe & Tsutomu Watanabe, 2021. "Household Inventory, Temporary Sales, and Price Indices," Working Papers on Central Bank Communication 033, University of Tokyo, Graduate School of Economics.
    10. Yuriy Gorodnichenko & Oleksandr Talavera & Nam Vu, 2020. "Quality of Goods and Price Setting for CPUs," Discussion Papers 20-23, Department of Economics, University of Birmingham.
    11. Philippe Andrade & Viacheslav Sheremirov, 2022. "Do Multisectoral New Keynesian Models Match Sectoral Data?," Working Papers 22-14, Federal Reserve Bank of Boston.
    12. Tiziano Ropele & Yuriy Gorodnichenko & Olivier Coibion, 2023. "Inflation Expectations and Misallocation of Resources: Evidence from Italy," NBER Working Papers 31190, National Bureau of Economic Research, Inc.
    13. Ales Marsal & Katrin Rabitsch & Lorant Kaszab, 2023. "From Linear to Nonlinear: Rethinking Inflation Dynamics in the Calvo Pricing Mechanism," Department of Economics Working Papers wuwp350, Vienna University of Economics and Business, Department of Economics.
    14. 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.
    15. Gorodnichenko, Yuriy & Talavera, Oleksandr & Vu, Nam, 2021. "Quality and price setting of high-tech goods," Economic Modelling, Elsevier, vol. 98(C), pages 69-85.
    16. Effiong, Ubong Edem & Akpan, Ekomabasi & Ekpe, John Polycarp, 2022. "Testing the Validity of the Inflation-Unemployment Nexus within the West African Monetary Zone," MPRA Paper 119722, University Library of Munich, Germany, revised 08 Aug 2022.
    17. Blanco, Cesar & Diz, Sebastian, 2021. "Optimal monetary policy with non-homothetic preferences," MPRA Paper 107427, University Library of Munich, Germany.
    18. Berardi Nicoletta, 2018. "Is price dispersion a concern for French consumers?," Rue de la Banque, Banque de France, issue 54, january.
    19. Marianna Riggi & Alex Tagliabracci, 2022. "Price rigidities, input costs, and inflation expectations: understanding firms’ pricing decisions from micro data," Questioni di Economia e Finanza (Occasional Papers) 733, Bank of Italy, Economic Research and International Relations Area.
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    21. Ba M. Chu & Kim Huynh & David T. Jacho-Chávez & Oleksiy Kryvtsov, 2018. "On the Evolution of the United Kingdom Price Distributions," Staff Working Papers 18-25, Bank of Canada.
    22. Carvalho, Carlos & Kryvtsov, Oleksiy, 2021. "Price selection," Journal of Monetary Economics, Elsevier, vol. 122(C), pages 56-75.
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    More about this item

    Keywords

    inflation; price dispersion; sales; sticky prices;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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