Product Revenue and Price Setting: Evidence and Aggregate Implications
71 Pages Posted: 21 Apr 2019
Date Written: April 1, 2019
Using retail scanner data, we find two previously unknown facts about price setting. First, the probability of price adjustment increases with product revenue. Second, the absolute size of price adjustment decreases with revenue. These facts are consistent with a model where the menu cost does not scale with revenue, and suggests that the price stickiness of individual products decrease with product revenue. Coupled with the movements in the cross-sectional revenue distribution across the business cycle, we find that the effect of monetary policy on output is 53.7% larger in recessions than in expansions using a calibrated menu cost model.
JEL Classification: E10, E30, E31, E32, E50, E52
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