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Pricing Under Distress

Author

Listed:
  • S. Borağan Aruoba
  • Andrés Fernández
  • Daniel Guzmán
  • Ernesto Pastén
  • Felipe Saffie

Abstract

Uncertainty triggers two confounding effects: a realization and an anticipation effect. By using the 2019 riots in Chile as a quasi-natural experiment, we show that the pricing behavior of supermarkets is consistent with a pure anticipation effect: during the 31-day period following the start of the Riots, supermarkets reduce the frequency of price changes and, conditional on a price change, the absolute magnitude of price changes increase. A quantitative menu cost model with news about a future increase in idiosyncratic demand dispersion can deliver these pricing dynamics. The effectiveness of monetary policy crucially depends on the timing of the intervention.

Suggested Citation

  • S. Borağan Aruoba & Andrés Fernández & Daniel Guzmán & Ernesto Pastén & Felipe Saffie, 2024. "Pricing Under Distress," NBER Working Papers 32538, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32538
    Note: ME
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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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