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The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications
Author:
Mr. Olivier Coibion
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Mr. Yuriy Gorodnichenko null

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Mr. Gee Hee Hong null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 207
Language:
English
Publication Date:
01 Aug 2012
DOI:
https://doi.org/10.5089/9781475505573.001
ISBN:
9781475505573
ISSN:
1018-5941
Pages:
75
Keywords:
WP; posted price; price index; Sales; Price Changes; Store-Switching; Inflation Measurement; price change; shopping effort; unemployment rate; price inflation; iceberg cost; high-price store; store price rank; business cycle; prices consumer; effective price; Inflation; Consumption; Output gap; Unemployment rate; Price indexes
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We study the cyclical properties of sales, regular price changes and average prices paid by consumers ("effective" prices) in a dataset containing prices and quantities sold for numerous retailers across a variety of U.S. metropolitan areas. Both the frequency and size of sales fall when local unemployment rates rise and yet the inflation rate for effective prices paid by consumers declines significantly with higher unemployment. This discrepancy can be reconciled by consumers reallocating their expenditures across retailers, a feature of the data which we document and quantify. We propose a simple model with household shopping effort and store-switching consistent with these stylized facts and document its implications for business cycles and policymakers.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund