The Cyclicality of Sales, Regular and Effective Prices: Comment
26 Pages Posted: 2 Aug 2015
Date Written: June 19, 2015
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: Suggested Citation