The Cyclicality of Sales, Regular and Effective Prices: Comment

FEDS Working Paper No. 2015-052

http://dx.doi.org/10.17016/FEDS.2015.052

26 Pages Posted: 2 Aug 2015

See all articles by Etienne Gagnon

Etienne Gagnon

Board of Governors of the Federal Reserve System

David Lopez-Salido

Board of Governors of the Federal Reserve System

Jason Sockin

Board of Governors of the Federal Reserve System

Date Written: June 19, 2015

Abstract

Coibion, Gorodnichenko, and Hong (2015) argue that the CPI underestimates the deceleration in consumer prices during economic downturns because the index fails to account for the reallocation of consumer spending from high- to low-price stores. We show that these authors' measures of inflation with and without store switching suffer from several methodological deficiencies, including an excessive truncation of price adjustments and the lack of a treatment for missing observations. When we address these deficiencies, the authors' key regression results no longer suggest that greater store switching during downturns is a statistically or economically significant phenomenon.

Keywords: effective prices, inflation measurement, outlet substitution bias

JEL Classification: D12, E31, E32

Suggested Citation

Gagnon, Etienne and Lopez-Salido, David and Sockin, Jason, The Cyclicality of Sales, Regular and Effective Prices: Comment (June 19, 2015). http://dx.doi.org/10.17016/FEDS.2015.052. Available at SSRN: https://ssrn.com/abstract=2631693 or http://dx.doi.org/10.2139/ssrn.2631693

Etienne Gagnon (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
2024523522 (Phone)

David Lopez-Salido

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jason Sockin

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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