Price Dispersion and Inflation: New Facts and Theoretical Implications

49 Pages Posted: 19 Oct 2015  

Viacheslav Sheremirov

Federal Reserve Banks - Federal Reserve Bank of Boston

Date Written: 2015-07-01

Abstract

From a macroeconomic perspective, price rigidity is often perceived to be an important source of price dispersion, with significant implications for the dynamic properties of aggregate variables, welfare calculations, and the design of optimal policy. For instance, in standard New Keynesian models, the key cost of business cycles stems from the price dispersion resulting from firms' inability to adjust prices instantaneously. However, different macroeconomic models make conflicting predictions about the level of price dispersion, as well as about its dynamic properties and sensitivity to inflation. These contrasting predictions can help us to discriminate across alternative models. This paper examines the link between price dispersion and inflation, and the role of sales in this relationship.

Keywords: inflation, price dispersion, sales, sticky prices

JEL Classification: E17, E31, E37, E40, E52

Suggested Citation

Sheremirov, Viacheslav, Price Dispersion and Inflation: New Facts and Theoretical Implications (2015-07-01). FRB of Boston Working Paper No. 15-10. Available at SSRN: https://ssrn.com/abstract=2675693

Viacheslav Sheremirov (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Paper statistics

Downloads
33
Abstract Views
207