The Importance of Attractive Prices in Pricing Dynamics

Abstract

Nominal rigidities have an important role in macro models used for the analysis of monetary policy. Recently, attractive prices (also known as price points) have often been referred to as one important potential explanation of nominal rigidities. An increased interest on attractive prices as an explanation for price rigidities rests on online pricing, in the context of which it has been shown that prices are rigid also on the internet, where physical costs are not important. Our empirical analyses using micro data on consumer prices in Finland indicate that a specific form of attractive prices - 9-ending prices - have a considerable effect on pricing dynamics. The results of the study show that changes to prices with 9 endings are more often decreases than are changes to prices with other endings. Price changes to 9-ending prices are also of smaller size than are changes to other endings.