Working Less and Bargain Hunting More: Macroimplications of Sales during Japan's Lost Decades

Nao Sudo,Kota Watanabe,Tsutomu Watanabe,Kozo Ueda

doi:10.1111/jmcb.12467

Abstract

AbstractStandard New Keynesian models have often neglected temporary sales. In this study, we ask whether this treatment is appropriate. We use Japanese scanner data covering the last two decades and find a negative correlation between the frequency of sales and hours worked. We then construct a model that takes households' decisions regarding their allocation of time for work, leisure, and bargain hunting into account. We show that the decline in hours worked explains the rise in the frequency of sales. The real effect of monetary policy shocks weakens by around 40% due to temporary sales, but monetary policy still matters.

Highlights

Standard New Keynesian models have often neglected temporary sales,1 the frequency of sales is far higher than that of regular price changes,2 and it is not necessarily guaranteed that the assumption of sticky prices holds
We first examined empirically whether there is a link between the frequency of sales and changes in macroeconomic developments
Japanese supermarket scanner data covering a period of two decades show that there is a significant negative correlation between the frequency of sales and hours worked

Summary

Introduction

Standard New Keynesian models have often neglected temporary sales, the frequency of sales is far higher than that of regular price changes, and it is not necessarily guaranteed that the assumption of sticky prices holds. Ignoring this fact is justified, if retailers’ decision to hold sales is independent of macroeconomic developments. Model incorporating sales and show that the real effect of monetary policy remains largely unchanged Empirical studies such as Kehoe and Midrigan (2010), Eichenbaum, Jaimovich, and Rebelo (2011), and Anderson et al (2012) argue that retailers’ decision to hold a sale is orthogonal to changes in macroeconomic developments.

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