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Menu Costs, Multi-Product Firms and Aggregate Fluctuations

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  • Virgiliu Midrigan

    (Ohio State University)

Abstract

I employ a large set of scanner price data collected in retail stores and document that (i) although the average magnitude of price changes is large, a substantial number of price changes are small in absolute value; (ii) the distribution of non-zero price changes has fat tails; and (iii) stores tend to adjust prices of goods in narrow product categories simultaneously. I extend the standard menu costs model to a multi-product setting in which firms face economies of scale in the technology of adjusting prices. The model, because of its ability to replicate this additional set of micro-economic facts, can generate aggregate fluctuations much larger than those in standard menu costs economies.

Suggested Citation

  • Virgiliu Midrigan, 2005. "Menu Costs, Multi-Product Firms and Aggregate Fluctuations," Macroeconomics 0511004, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0511004
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    References listed on IDEAS

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    More about this item

    Keywords

    state-dependent pricing; multi-product firms;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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