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

76 Pages Posted: 1 Nov 2012

See all articles by Olivier Coibion

Olivier Coibion

University of Texas at Austin

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Gee Hee Hong

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2012

Abstract

We study the cyclical properties of sales, regular price changes and average prices paid by consumers ("effective" prices) in a dataset containing prices and quantities sold for numerous retailers across a variety of U.S. metropolitan areas. Both the frequency and size of sales fall when local unemployment rates rise and yet the inflation rate for effective prices paid by consumers declines significantly with higher unemployment. This discrepancy can be reconciled by consumers reallocating their expenditures across retailers, a feature of the data which we document and quantify. We propose a simple model with household shopping effort and store-switching consistent with these stylized facts and document its implications for business cycles and policymakers.

Keywords: Sales, Price Changes, Store-switching, Inflation Measurement, Economic Conditions, Economic Models, Prices, Business Fluctuations, And Cycles,money And Interest Rates,monetary Policy, Central Banking, And The Supply Of Money And Credit

Suggested Citation

Coibion, Olivier and Gorodnichenko, Yuriy and Hong, Gee Hee, The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications (August 2012). IMF Working Paper No. 12/207, Available at SSRN: https://ssrn.com/abstract=2169753

Olivier Coibion (Contact Author)

University of Texas at Austin ( email )

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Austin, TX Texas 78712
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Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://www.econ.berkeley.edu/~ygorodni/index.htm

National Bureau of Economic Research (NBER) ( email )

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IZA Institute of Labor Economics ( email )

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Gee Hee Hong

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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