How Frequent are Small Price Changes?

37 Pages Posted: 31 Mar 2012 Last revised: 4 Apr 2012

See all articles by Martin Eichenbaum

Martin Eichenbaum

Northwestern University; National Bureau of Economic Research (NBER)

Nir Jaimovich

University of Zurich

Sergio T. Rebelo

Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Josephine Smith

New York University (NYU) - Department of Finance

Date Written: March 2012

Abstract

Recent empirical work suggests that small price changes are relatively common. This evidence has been used to criticize classic menu-cost models. In this paper, we use scanner data from a national supermarket chain and micro data from the Consumer Price Index to reassess the importance of small price changes. We argue that the vast majority of these changes are due to measurement error. We conclude that the evidence on the prevalence of small price changes is much too weak to be used as a litmus test of nominal rigidity models.

Suggested Citation

Eichenbaum, Martin and Jaimovich, Nir and Tavares Rebelo, Sergio and Smith, Josephine, How Frequent are Small Price Changes? (March 2012). NBER Working Paper No. w17956. Available at SSRN: https://ssrn.com/abstract=2031964

Martin Eichenbaum (Contact Author)

Northwestern University ( email )

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National Bureau of Economic Research (NBER)

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Nir Jaimovich

University of Zurich ( email )

Sergio Tavares Rebelo

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Leverone Hall
Evanston, IL 60208
United States
847-467-2329 (Phone)
847-491-5719 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Josephine Smith

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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New York, NY 10012-1126
United States

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