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Pricing Regimes in Disaggregated Data

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  • Luminita Stevens

    (Columbia University)

Abstract

This paper develops a test for changes in the distribution of good-level prices over time and applies it to grocery store data. The method is based on the Kolmogorov-Smirnov statistic, which measures the distance between two empirical distributions. This test is robust to different data generating processes and does not require specific a priori knowledge about patterns in the data. I find that the typical pricing regime lasts seven months yet consists of a small number of distinct prices: for the large majority of regimes, five or fewer unique prices account for more than 90% of the regime. The test provides a natural way to investigate the prevalence of sticky pricing plans, since the identified change points serve as estimates of transitions to new plans. I find strong evidence in favor of rigid pricing plans: in addition to rigidity of the modal price of each regime, 76% of product series exhibit some degree of within-regime rigidity among non-modal prices; conversely, only 18% of series consist entirely of one-to-flex regimes in which prices flexibly deviate from the rigid mode; the remaining 5% consist of single sticky price regimes.

Suggested Citation

  • Luminita Stevens, 2011. "Pricing Regimes in Disaggregated Data," 2011 Meeting Papers 1389, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:1389
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    References listed on IDEAS

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    1. Christian Hellwig & Ariel Burstein, 2007. "Prices and Market Shares in a Menu Cost Model," 2007 Meeting Papers 327, Society for Economic Dynamics.
    2. Bernardo Guimaraes & Kevin D. Sheedy, 2011. "Sales and Monetary Policy," American Economic Review, American Economic Association, vol. 101(2), pages 844-876, April.
    3. Kehoe, Patrick & Midrigan, Virgiliu, 2015. "Prices are sticky after all," Journal of Monetary Economics, Elsevier, vol. 75(C), pages 35-53.
    4. Daniel Levy & Haipeng (Allan) Chen & Georg Müller & Shantanu Dutta & Mark Bergen, 2010. "Holiday Price Rigidity and Cost of Price Adjustment," Economica, London School of Economics and Political Science, vol. 77(305), pages 172-198, January.
    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. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    7. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1415-1464.
    8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    9. Andrew S. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 703-725.
    10. Klenow, Peter J. & Malin, Benjamin A., 2010. "Microeconomic Evidence on Price-Setting," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 6, pages 231-284 Elsevier.
    11. Chahrour, Ryan A., 2011. "Sales and price spikes in retail scanner data," Economics Letters, Elsevier, vol. 110(2), pages 143-146, February.
    12. Abe, Naohito & Tonogi, Akiyuki, 2010. "Micro and macro price dynamics in daily data," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 716-728, September.
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    Cited by:

    1. Emi Nakamura & Jón Steinsson, 2013. "Price Rigidity: Microeconomic Evidence and Macroeconomic Implications," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 133-163, May.
    2. Stevens, Luminita, 2015. "Coarse Pricing Policies," Staff Report 520, Federal Reserve Bank of Minneapolis.

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