Retail Price Setting in Uruguay
Universidad de la Republica - Faculty of Social Sciences; Central Bank of Uruguay
Universidad de Montevideo
June 6, 2012
Economia, LACEA Journal, 2012 Spring, vol. 12(2), pp. 77-109
In recent years there has been a large increase in the empirical literature on price behavior. As new and detailed data sets become available, we observe a number of important studies on the microeconomic fundamentals of price setting by firms — mainly retailers — and their impact on inflation. This analysis allows a better understanding of the behavior, dispersion, and volatility of prices. In this paper, we use a rich and unique data set of 30 million daily prices in grocery stores and supermarkets across Uruguay to analyze stylized facts about consumer price behavior. Our findings are as follows:
— The median duration of prices is two and one-half months. Therefore, retail prices in Uruguay are less sticky than in the United States and Brazil but stickier than in Chile and the United Kingdom.
— We do not find evidence of a seasonal pattern in the likelihood of price adjustments.
— The frequency of price adjustment is correlated with expected inflation only for the personal care product category. For the food category we find that supermarkets change the percentage points of the adjustment but not their frequency.
— The probability of price change on the first day of the month is nine times higher than on any other day.
— The probability of a price change is not constant over time.
— There exists a high synchronization of price changes in our database, either at the city level or chain level.
Overall, our analysis seems to be consistent with time-dependent models, although the high synchronization of price changes on the first day of the month awaits a better theoretical explanation.
Keywords: Retail, micro data, prices, price volatility, sticky prices
JEL Classification: E31, D40, L16, L81Accepted Paper Series
Date posted: June 6, 2012
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