{
  "title": "The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications",
  "publication": "IMF Working Papers, August 1, 2012",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/the-cyclicality-of-sales-regular-and-effective-prices-business-cycle-and-policy-implications-26200",
  "canonical": "https://www.imf.org/en/publications/wp/issues/2016/12/31/the-cyclicality-of-sales-regular-and-effective-prices-business-cycle-and-policy-implications-26200",
  "overlayPath": "/en/publications/wp/issues/2016/12/31/the-cyclicality-of-sales-regular-and-effective-prices-business-cycle-and-policy-implications-26200/index.md",
  "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.",
  "sections": [
    {
      "heading": "Summary and main findings",
      "content": "- Study of cyclical properties of sales, regular price changes, and average prices paid by consumers (\"effective\" prices) using a dataset of prices and quantities sold for numerous retailers across a variety of U.S. metropolitan areas.\n- Both the frequency and size of sales fall when local unemployment rates rise.\n- The inflation rate for effective prices paid by consumers declines significantly with higher unemployment.\n- The apparent discrepancy between falling sales activity and declining effective-price inflation is reconciled by consumers reallocating their expenditures across retailers; this feature is documented and quantified in the data.\n- A simple model is proposed with household shopping effort and store-switching consistent with these stylized facts; implications for business cycles and policymakers are documented."
    },
    {
      "heading": "Data features and empirical patterns",
      "content": "- Dataset contains prices and quantities sold for numerous retailers across a variety of U.S. metropolitan areas.\n- Empirical regularities documented:\n  - Frequency of sales falls with higher local unemployment rates.\n  - Size of sales falls with higher local unemployment rates.\n  - Inflation rate for effective prices paid by consumers declines significantly with higher unemployment.\n- Consumer behavior in the data: reallocation of expenditures across retailers (store-switching and shopping effort adjustments) is a key margin."
    },
    {
      "heading": "Model and mechanisms",
      "content": "- Model components emphasized:\n  - Household shopping effort as a choice variable.\n  - Store-switching behavior by consumers.\n  - Interaction of posted (regular) prices, sale frequency/size, and effective prices paid.\n- Model is presented as simple and consistent with the documented stylized facts, linking micro pricing dynamics and consumer reallocation to macro cyclical outcomes."
    },
    {
      "heading": "Business cycle implications",
      "content": "- Micro-level price and quantity adjustments (sales frequency and size, store-switching) affect measured inflation through changes in effective prices paid.\n- Cyclical increases in unemployment are associated with lower effective-price inflation, driven in part by consumer reallocation toward lower-priced retailers and reduced sale activity.\n- These mechanisms imply that inflation dynamics during downturns reflect both supply-side price-setting behavior and demand-side shopping/retailer-choice responses."
    },
    {
      "heading": "Policy implications and considerations",
      "content": "- Measurement: Understanding effective-price dynamics requires accounting for consumer reallocation across retailers and the interaction of sales and posted prices.\n- Monetary and fiscal policymakers should consider that observed declines in effective-price inflation during periods of higher unemployment may partly reflect changes in consumer shopping effort and store-switching, not only changes in posted price rigidity.\n- Policy assessments of inflation stabilization and output gap measures should incorporate the documented micro-level price and expenditure reallocation channels.\n\nSource: The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications (IMF Working Paper).\n\n---\n\n Content in this bundle\n\n- Wp12207\n  - Wp12207 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Wp12207 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/the-cyclicality-of-sales-regular-and-effective-prices-business-cycle-and-policy-implications-26200"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/wp/issues/2016/12/31/the-cyclicality-of-sales-regular-and-effective-prices-business-cycle-and-policy-implications-26200/index.md)",
    "[Structured JSON version](/en/publications/wp/issues/2016/12/31/the-cyclicality-of-sales-regular-and-effective-prices-business-cycle-and-policy-implications-26200/index.json)",
    "[Bundle manifest](/en/publications/wp/issues/2016/12/31/the-cyclicality-of-sales-regular-and-effective-prices-business-cycle-and-policy-implications-26200/bundle-manifest.json)",
    "Authors: Olivier Coibion, Yuriy Gorodnichenko, Gee Hee Hong",
    "Published: August 1, 2012",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475505573.001",
    "Study of cyclical properties of sales, regular price changes, and average prices paid by consumers (\"effective\" prices) using a dataset of 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.",
    "The inflation rate for effective prices paid by consumers declines significantly with higher unemployment.",
    "The apparent discrepancy between falling sales activity and declining effective-price inflation is reconciled by consumers reallocating their expenditures across retailers; this feature is documented and quantified in the data.",
    "A simple model is proposed with household shopping effort and store-switching consistent with these stylized facts; implications for business cycles and policymakers are documented.",
    "Dataset contains prices and quantities sold for numerous retailers across a variety of U.S. metropolitan areas.",
    "Empirical regularities documented:",
    "Consumer behavior in the data: reallocation of expenditures across retailers (store-switching and shopping effort adjustments) is a key margin.",
    "Model components emphasized:",
    "Model is presented as simple and consistent with the documented stylized facts, linking micro pricing dynamics and consumer reallocation to macro cyclical outcomes.",
    "Micro-level price and quantity adjustments (sales frequency and size, store-switching) affect measured inflation through changes in effective prices paid.",
    "Cyclical increases in unemployment are associated with lower effective-price inflation, driven in part by consumer reallocation toward lower-priced retailers and reduced sale activity.",
    "These mechanisms imply that inflation dynamics during downturns reflect both supply-side price-setting behavior and demand-side shopping/retailer-choice responses.",
    "Measurement: Understanding effective-price dynamics requires accounting for consumer reallocation across retailers and the interaction of sales and posted prices.",
    "Monetary and fiscal policymakers should consider that observed declines in effective-price inflation during periods of higher unemployment may partly reflect changes in consumer shopping effort and store-switching, not only changes in posted price rigidity.",
    "Policy assessments of inflation stabilization and output gap measures should incorporate the documented micro-level price and expenditure reallocation channels.",
    "**Wp12207**"
  ],
  "related": [
    {
      "title": "Wp12207",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12207.pdf",
      "summary": {
        "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12207.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12207.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/wp/issues/2016/12/31/the-cyclicality-of-sales-regular-and-effective-prices-business-cycle-and-policy-implications-26200/index.md",
    "json": "/en/publications/wp/issues/2016/12/31/the-cyclicality-of-sales-regular-and-effective-prices-business-cycle-and-policy-implications-26200/index.json",
    "bundleManifest": "/en/publications/wp/issues/2016/12/31/the-cyclicality-of-sales-regular-and-effective-prices-business-cycle-and-policy-implications-26200/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-18T07:02:57.130Z"
}