The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications
76 Pages Posted: 1 Nov 2012
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The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications
The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications
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
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