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The Cyclicality of Sales, Regular and Effective Prices : Business Cycle and Policy Implications

Author/Editor: Olivier Coibion | Yuriy Gorodnichenko | Gee Hee Hong
Authorized for Distribution: August 1, 2012
Electronic Access: Free Full Text (PDF file size is 756KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
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Series: Working Paper No. 12/207
Subject(s): Economic conditions | Economic models | Prices
Author's keyword(s): Sales | Price Changes | Store-Switching | Inflation Measurement
    Published:   August 1, 2012        
    ISBN/ISSN:   9781475505573/1018-5941   Format:   Paper
    Stock No:   WPIEA2012207   Pages:   75
    Price:   US$18.00
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