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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.

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  • 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:

    1. Yuriy Gorodnichenko & Viacheslav Sheremirov & Oleksandr Talavera, 2018. "Price Setting in Online Markets: Does IT Click?," Journal of the European Economic Association, European Economic Association, vol. 16(6), pages 1764-1811.
    2. 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.
    3. Yuriy Gorodnichenko & Oleksandr Talavera, 2017. "Price Setting in Online Markets: Basic Facts, International Comparisons, and Cross-Border Integration," American Economic Review, American Economic Association, vol. 107(1), pages 249-282, January.
    4. Takushi Kurozumi & Willem Van Zandweghe, 2019. "A Theory of Intrinsic Inflation Persistence," Working Papers 201916, Federal Reserve Bank of Cleveland.
    5. 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.
    6. 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.
    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. 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.
    9. Berardi Nicoletta, 2018. "Is price dispersion a concern for French consumers?," Rue de la Banque, Banque de France, issue 54, january.

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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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