Working Paper: NBER ID: w21732
Authors: David Berger; Joseph Vavra
Abstract: We use microdata underlying U.S. consumer, producer and import price indices to document how the distribution of price changes evolves over time. Two striking features characterize pricing at each stage of production: 1) Frequency is countercyclical. 2) Frequency is correlated with variance. Conversely, other statistics which have received recent attention, like kurtosis, do not exhibit uniform patterns across our datasets. What implications do our empirical results have for monetary policy? Using a flexible accounting framework which collapses the high-dimensional distribution of price changes into a single measure of aggregate price flexibility, we show that flexibility is highly variable and countercyclical.
Keywords: price changes; monetary policy; price flexibility; business cycles
JEL Codes: E3; E31; E32; E5; E52; L16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Frequency of price adjustment (E30) | Economic growth (O00) |
| Frequency of price adjustment (E30) | Variance of price changes (E30) |
| Price flexibility (D41) | Effectiveness of monetary policy (E52) |
| Economic growth (O49) | Frequency of price adjustment (E30) |
| Economic growth (O49) | Price flexibility (D41) |