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Rigid Prices: Evidence from US scanner data

  • Ben Eden
  • Jeff Campbell

This paper is part of the growing literature that uses micro-data to distinguish among alternative price behavior models and provide some measurements essential for calibration exercises. We use weekly grocery US scanner data and attempt to distinguish among three types of models: State dependent menu cost models, time dependent sticky price models and sequential trade models. Our main findings are: 1. The probability that a store will change its price is increasing in the distance from the mean price charged by other stores and is decreasing in the time since the last price change; 2. The time between price changes is negatively autocorrelated; 3. There is a positive relationship between the standard deviation of transaction prices (across units) and the surprise in sales. State dependent menu cost models say that only the level of the real price matters. Our first finding is that the probability of repricing does depend on the relative price but unlike the prediction of the theory other variables also matter. State dependent models suggest that stores whose (S,s) band is relatively wide will make large nominal price jumps relatively infrequently. This suggests that the time between price changes should exhibit positive serial correlation. We actually find a negative autocorrelation. Time dependent models assume that a store change its price every N periods. This suggests that the probability of making a price change should increase with the time since the last change. We find that the probability actually decreases with the time since the last change. The uncertain and sequential trade model says that when the realization of demand is low only low priced goods are sold, but when the realization of demand is high both low priced and high priced goods are sold. This suggests a positive relationship between the standard deviation of transaction prices (across units) and the surprise in the number of units sold. The correlations in the data are consistent with this prediction.

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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 461.

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Date of creation: 2004
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Handle: RePEc:red:sed004:461
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htm
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  1. Robert Lucas & Mike Golosov, 2004. "Menu Costs and Phillips Curves," 2004 Meeting Papers 144, Society for Economic Dynamics.
  2. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  3. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
  4. Peter E. Rossi & Judith A. Chevalier & Anil K. Kashyap, 2002. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," Yale School of Management Working Papers ysm291, Yale School of Management.
  5. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
  6. Peter J. Klenow & Oleksiy Kryvtsov, 2008. "State-Dependent or Time-Dependent Pricing: Does It Matter for Recent U.S. Inflation?," The Quarterly Journal of Economics, MIT Press, vol. 123(3), pages 863-904, August.
  7. Dhyne, Emmanuel & Álvarez, Luis J. & Le Bihan, Hervé & Veronese, Giovanni & Dias, Daniel & Hoffmann, Johannes & Jonker, Nicole & Lünnemann, Patrick & Rumler, Fabio & Vilmunen, Jouko, 2005. "Price setting in the euro area: some stylized facts from individual consumer price data," Working Paper Series 0524, European Central Bank.
  8. Anil K. Kashyap, 1990. "Sticky prices: new evidence from retail catalogs," Finance and Economics Discussion Series 112, Board of Governors of the Federal Reserve System (U.S.).
  9. Caplin, Andrew & Leahy, John, 1991. "State-Dependent Pricing and the Dynamics of Money and Output," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 683-708, August.
  10. J. David Richardson, 2003. "Scanner Indexes for the Consumer Price Index," NBER Chapters, in: Scanner Data and Price Indexes, pages 39-66 National Bureau of Economic Research, Inc.
  11. Jerzy D. Konieczny & Andrzej Skrzypacz, 2000. "Inflation and Price Setting in a Natural Experiment," Econometric Society World Congress 2000 Contributed Papers 1132, Econometric Society.
  12. Darby, Michael R & Haltiwanger, John C & Plant, Mark W, 1985. "Unemployment Rate Dynamics and Persistent Unemployment under Rational Expectations," American Economic Review, American Economic Association, vol. 75(4), pages 614-37, September.
  13. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-89, April.
  14. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  15. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  16. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
  17. Eyal Baharad & Benjamin Eden, 2003. "Price Rigidity and Price Dispersion: Evidence from Micro Data," Vanderbilt University Department of Economics Working Papers 0321, Vanderbilt University Department of Economics.
  18. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing And The General Equilibrium Dynamics Of Money And Output," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 655-690, May.
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