Working Paper: NBER ID: w18273
Authors: Olivier Coibion; Yuriy Gorodnichenko; Gee Hee Hong
Abstract: 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.
Keywords: No keywords provided
JEL Codes: E3; E4; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local unemployment rate (J64) | effective price inflation (E31) |
| local unemployment rate (J64) | frequency and size of sales (L25) |
| household expenditures shift towards low-price retailers (D12) | average prices paid for goods (P22) |
| effective prices (P22) | consumer behavior (D19) |
| local unemployment rate (J64) | effective prices (P22) |