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

We study the cyclical properties of sales, regular price changes, and average prices paid by consumers (“effective” prices) using data on prices and quantities sold for numerous retailers across many US metropolitan areas. Inflation in the effective prices paid by consumers declines significantly wi...

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Bibliographic Details
Published in:The American economic review 2015-03, Vol.105 (3), p.993-1029
Main Authors: Coibion, Olivier, Gorodnichenko, Yuriy, Hong, Gee Hee
Format: Article
Language:English
Subjects:
Business cycles
Coffeehouses
Consumers
Consumption
Discount department stores
Disposable income
Economic activity
Economic analysis
Economic conditions
Employment
Expenditures
Household expenditure
Households
Macroeconomics
Metropolitan areas
Policy making
Prices
Pricing policies
Retail stores
Retail trade
Sales
Sales promotions
Shopping
Studies
U.S.A
Unemployment
Universal Product Code
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Summary:We study the cyclical properties of sales, regular price changes, and average prices paid by consumers (“effective” prices) using data on prices and quantities sold for numerous retailers across many US metropolitan areas. Inflation in the effective prices paid by consumers declines significantly with higher unemployment while little change occurs in the inflation rate of prices posted by retailers. This difference reflects the reallocation of household expenditures across retailers, a feature of the data which we document and quantify, rather than sales. We propose a simple model with household store-switching and assess its implications for business cycles and policymakers. (JEL D12, E31, E32, L25, L81)
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.20121546