We examine the frequency of price changes for 350 categories of goods and services covering about 70 percent of consumer spending, on the basis of unpublished data from the Bureau of Labor Statistics for 1995–97. In comparison with previous studies, we find much more frequent price changes, with half of prices lasting less than 4.3 months. Even excluding temporary price cuts (sales), we find that half of prices last 5.5 months or less. We also find that the frequency of price changes differs dramatically across goods. Compared to the predictions of popular sticky‐price models, actual inflation rates are far more volatile and transient for sticky‐price goods.

Consumer theory suggests that expenditures on luxuries and durables should be more cyclical than expenditures on necessities and nondurables. Estimating luxuriouseness and durability for 57 consumer goods, we confirm this prediction in U.S. data. We exploit this finding to test predictions of cyclical utilization and increasing returns models of business cycles. Both models predict more cyclical productivity for durable luxuries, a prediction borne out in the data. The utilization model predicts procyclical relative prices for durables and luxuries; the increasing returns model does not. Prices are more procyclical for durables and luxuries, discriminating in favor of cyclical utilization.

We estimate cyclicality in labor’s user cost allowing for cyclical fluctuations in the quality of worker-firm matches and wages that are smoothed within employment matches. To do so, we exploit a match’s long-run wage to control for its quality. Using 1980–2019 National Longitudinal Survey of Youth data, we identify three channels by which recessions affect user cost: they lower the new-hire wage and wages going forward in the match, but they also result in higher subsequent separations. We find that labor’s user cost is highly procyclical, increasing by more than 4% for a 1 percentage point decline in unemployment.

We revisit to what extent the increase in income inequality since 1980 was mirrored by consumption inequality. We do so by constructing an alternative measure of consumption expenditure using a demand system to correct for systematic measurement error in the Consumer Expenditure Survey. Our estimation exploits the relative expenditure of high- and low-income households on luxuries versus necessities. This double differencing corrects for measurement error that can vary over time by good and income. We find consumption inequality tracked income inequality much more closely than estimated by direct responses on expenditures. (JEL D31, D63, E21)

Abstract Many households hold little wealth. In standard precautionary savings models, these households should not only display higher marginal propensities to consume (MPCs) but also higher future consumption growth. In contrast, we see from the Panel Study of Income Dynamics that such “hand-to-mouth” households do not display higher growth in spending. They also exhibit greater volatility of spending and adjust their spending to a greater extent through the number of categories consumed. Consistent with a role for preference heterogeneity, the panel data show that it is persistent differences across households, not current assets, that predict low consumption growth and other spending differences for the hand-to-mouth households. To identify the extent of preference heterogeneity, we consider the model of Kaplan and Violante with both liquid and illiquid assets, but allow heterogeneity in preferences. To match the data, many poor hand-to-mouth must be relatively impatient and have a high inter-temporal elasticity of substitution. The model shows that preferences predominantly explain the higher MPCs for low-asset households. Preference heterogeneity notably increases the spending impact of fiscal transfers, but only if targeted, while reducing that from interest rate cuts.

The countercyclical pattern of inventory-sales ratios is a striking feature of inventory behavior. In a model where inventories are productive for sales, both the markup of price over marginal cost and expected changes in marginal cost are key determinants of that ratio. This paper argues that costly variation in factor utilization gives rise to countercyclical markups in production-to-stock manufacturing industries. The markup turns out to be more important than intertemporal substitution in explaining the behavior of inventory-sales ratios. (JEL E22, E32)

Employment and hours are more cyclical than dictated by productivity and consumption. This intratemporal labor wedge can arise from product or labor market distortions. Based on employee wages, the literature has attributed the intratemporal wedge almost entirely to labor market distortions. Because wages may be smoothed versions of labor's true cyclical price, we instead examine the self-employed and intermediate inputs, respectively. For recent decades in the United States, we find price markup movements are at least as cyclical as wage markup movements. Thus, countercyclical price markups deserve a central place in business-cycle research, alongside sticky wages and matching frictions. (JEL E24, E32, E63, J31, J41)

Many business cycle models use a flat short-run Phillips curve, due to time-dependent pricing and strategic complementarities, to explain fluctuations in real output. But, in doing so, these models predict unrealistically high persistence and stability of US inflation in recent decades. We calculate “reset price inflation”—based on new prices chosen by the subsample of price changers—to dissect this discrepancy. We find that the models generate too much persistence and stability both in reset price inflation and in the way reset price inflation is converted into actual inflation. Our findings present a challenge to existing explanations for business cycles. (JEL E31, E52)

We propose a methodology exploiting time diary data and “leisure Engel curves” to infer quality changes across leisure activities and measure the effects on the marginal return to leisure. We study leisure returns for men aged 21–30, who have shifted leisure toward video gaming and recreational computing and have had larger market work hour declines than older men or women since 2004. We show that recreational computing is distinctly a leisure luxury for younger men. By increasing the value of time, innovations to this leisure technology have lowered young men's work hours by 2%, or much of their work hours decline compared to older men's.