Microeconomic Evidence on Price-Setting

90 Pages Posted: 22 Mar 2010

See all articles by Peter J. Klenow

Peter J. Klenow

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Ben Malin

Federal Reserve Bank of Minneapolis

Date Written: March 2010

Abstract

The last decade has seen a burst of micro price studies. Many studies analyze data underlying national CPIs and PPIs. Others focus on more granular sub-national grocery store data. We review these studies with an eye toward the role of price setting in business cycles. We summarize with ten stylized facts: Prices change at least once a year, with temporary price discounts and product turnover often playing an important role. After excluding many short-lived prices, prices change closer to once a year. The frequency of price changes differs widely across goods, however, with more cyclical goods exhibiting greater price flexibility. The timing of price changes is little synchronized across sellers. The hazard (and size) of price changes does not increase with the age of the price. The cross-sectional distribution of price changes is thick-tailed, but contains many small price changes too. Finally, strong linkages exist between price changes and wage changes.

Suggested Citation

Klenow, Peter J. and Malin, Benjamin A., Microeconomic Evidence on Price-Setting (March 2010). NBER Working Paper No. w15826. Available at SSRN: https://ssrn.com/abstract=1574645

Peter J. Klenow (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Benjamin A. Malin

Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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