American Economic Review Vol. 105 No. 3 2015

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

Olivier Coibion¹; Yuriy Gorodnichenko²; Gee Hee Hong³

¹ Department of Economics, University of Texas, 2225 Speedway, BRB 1.116, C3100, Austin, TX 78712 (e-mail: ) · ² Department of Economics, University of California-Berkeley, 530 Evans Hall #3880, Berkeley, CA 94720 (e-mail: ) · ³ International Monetary Fund, 700 19th Street, NW Washington, DC 20431 (e-mail: )

Abstract

We study the cyclical properties of sales, regular price changes, and average prices paid by consumers (“effective” prices) using data on prices and quantities sold for numerous retailers across many US metropolitan areas. Inflation in the effective prices paid by consumers declines significantly with higher unemployment while little change occurs in the inflation rate of prices posted by retailers. This difference reflects the reallocation of household expenditures across retailers, a feature of the data which we document and quantify, rather than sales. We propose a simple model with household store-switching and assess its implications for business cycles and policymakers.

DOI

10.1257/aer.20121546

Volume

105

Issue

3

Pages

993-1029

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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