The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications

By Olivier Coibion, Yuriy Gorodnichenko, Gee Hee Hong

August 1, 2012

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Format: Chicago

Olivier Coibion, Yuriy Gorodnichenko, and Gee Hee Hong. The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications, (USA: International Monetary Fund, 2012) accessed December 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Consumption, Inflation, Labor, National accounts, Output gap, Price indexes, Prices, Production, Unemployment rate

Keywords: Business cycle, Consumption, Effective price, High-price store, Iceberg cost, Inflation, Inflation Measurement, Output gap, Posted price, Price change, Price Changes, Price index, Price indexes, Price inflation, Prices consumer, Sales, Shopping effort, Store price rank, Store-Switching, Unemployment rate, Unemployment rate, WP

Publication Details

Pages:

75
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/207
Stock No:

WPIEA2012207
ISBN:

9781475505573
ISSN:

1018-5941

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