Nominal Price Research Articles

Price Rigidity in Norway in the Nineteenth Century

This paper analyzes nominal price development in Norway from 1830 to 1920 and fills a gap in the literature on nominal price rigidity in Europe during the nineteenth and the beginning of the twentieth centuries. The research question: how did the nominal price rigidity change in Norway during this time period? The focus on Norway is justified because of the availability of historical data and gaps in literature concerning the nominal rigidities.The analysis of some of the digitized data for Oslo, Bergen and Stavanger during the period of 1830–1913 indicate that: a) The flexibility of prices did not change much during the classical Gold Standard in Norway; b) The change in price rigidity mainly came because of the changing magnitude of price changes; c) The decrease in magnitude might have happened before the Gold Standard took effect in Norway.

Determinants of Investment Decisions on the Capital Market

Abstract The article deals with the psychological determinants of investment decisions made by an individual investor on the capital market. The purpose of this article is to try to assess the relationship between capital involvement and selected personality traits and how individuals perceive investments in securities of different nominal unit price. The author attempts to verify whether specific price thresholds affect respondents in a similar way as prices of goods and services to customers, in the context of capital investment. The results of the nationwide survey of 564 individual investors are based on analyses using the model of the willingness to invest in shares with a specific nominal value compared to the individual characteristics of the respondents. The results of the study indicate a significant relationship between personality traits and the tendency to choose stocks with relatively low or very high denomination (current transaction price).

Explanations for the 2014 oil price decline: Supply or demand?

The Brent price of crude oil declined from $112 in June 2014 to a low of $31 in January 2016 (both nominal prices), a cumulative decrease of more than 70%. Some attribute the decline to increased oil production due to the U.S. shale revolution. This paper proposes a variety of diagnostics to assess the how consistent this explanation is with the data. I find that the data are broadly inconsistent with this attribution of the decline to shale oil. Rather, the data are more consistent with a demand-side explanation of weakening global economic conditions and demand for commodities, including but not limited to oil. In summary, there is no evidence that the U.S. shale revolution played a significant role in the decline in oil prices since 2014. Rather, the evidence suggests that weakening oil demand played a much stronger role in driving the 2014 decline in oil prices.

How Robust Are Popular Models of Nominal Frictions?

AbstractWe consider alternative combinations of nominal price and wage frictions in dynamic stochastic general equilibrium models fit to U.S. data. Since inflation was unanchored in the 1970s, we divide the data into early, middle, and late samples (1955–68, 1969–79, and 1983–2007, respectively). We find that prices are reoptimized more frequently and exhibit greater indexation to past inflation in the middle sample than in the other two samples, while wages are reoptimized with increasing frequency and display less evidence of indexation over time. Differences in price and wage setting across samples have important implications for the economy's response to key shocks.

Factors affecting homebuyers' willingness to pay green building price premium: Evidence from a nationwide survey in Israel

Green buildings (GBs) bring multiple benefits to homebuyers. However, the lack of knowledge or uncertainty about these benefits, combined with a nominal price premium (PP) for GBs, may prevent prospective homebuyers from entering the GB market. Therefore, governmental incentives may be needed. The present study serves the dual purpose of examining the PP size that prospective homebuyers in Israel are willing to pay (WTP) for GBs, and investigating, for the first time, the potential impact of prevalent GB policy instruments on the premium's size. Findings from a nationwide online survey indicate an acceptable PP in the range of 7–10%. Expected maintenance savings and familiarity with GB concept and benefits are found to be positively associated with the size of the premium, while counterintuitively, financial incentives, such as tax breaks and subsidized loans, are found to result in lesser, rather than greater, WTP PP. This indicates that financial incentives to homebuyers may be counterproductive by generating emotive and opposite responses, and that a long-term governmental commitment to support GB maintenance may be more effective. The study suggests a mix of financial and non-financial GB incentives to homebuyers. The study mainly contributes to better-understanding of how potential homebuyers' GB choice can be encouraged by applying informed policy tools. It also emphasizes the importance of evaluating unexpected consequences of future interventions in the GB market.

The Lack of Transparency in Procurement of Goods in Village Governments in Indonesia: an Examples in Rangkah Kidul Village, Sidoarjo

The principle of Good Governance contains Transparency, which is transparent and Accountability which explains that the procurement of goods and services in the Village needs to be regulated in a regulation that can guarantee legal certainty and produce goods and goods that are qualified. There were many different interpretations in each region which resulted in the vulnerability of misuse of rules, methods, to the determination of winners at a smaller level, one of them was in the Village Alert Operational Car Procurement in Rangkah Kidul Village, Sidoarjo. In the research, the procurement of Village Alert Operational Cars in Rangkah Kidul Sidoarjo Village used normative followed by case studies that looked at and observed the procurement. In fact the procurement is not based on the principle of openness and accountability. Besides that in nominal prices, accountability to the Rangkah Kidul village government in Sidoarjo is not worthy of being said as a good village government because it is not appropriate in the application of the General Principles of Good / Decent Governance.

Endogenous Asymmetric Money Illusion

We show that when investors suffer from endogenous asymmetric money illusion, the usual proportionality between money supply and nominal prices commonly present in frictionless economies is eliminated. This drives changes in the money supply to cause real price fluctuations. Nevertheless, the combined effect on the real state price density and the price of money leads the nominal state price density, and consequently nominal bond prices, to be independent of money illusion. This article thus provides a theoretical foundation for Modigliani-Cohn's conjecture that money illusion impacts stock markets but not bond markets.

Price Rigidities and the Granular Origins of Aggregate Fluctuations

We derive conditions under which heterogeneity in nominal price rigidity amplifies the aggregate fluctuations from idiosyncratic shocks and demonstrate its quantitative implications: (1) GDP volatility from sectoral productivity shocks doubles when nominal price rigidity is heterogeneous rather than homogeneous; (2) sectoral productivity shocks can jointly rationalize the volatility of sectoral prices, aggregate prices, and GDP contrary to aggregate productivity shocks; (3) heterogeneity in nominal rigidity changes the sectors from which aggregate fluctuations originate. We also discuss implications for aggregate price dynamics and the role of alternative monetary policy rules.

Price Setting in Online Markets: Does IT Click?

Using a unique dataset of daily U.S. and U.K. price listings and the associated number of clicks for precisely defined goods from a major shopping platform, we shed new light on how prices are set in online markets, which have a number of special properties such as low search costs, low costs of monitoring competitors’ prices, and low costs of nominal price adjustment. We document that although online prices are more flexible than offline prices, they nevertheless exhibit relatively long spells of fixed prices, large size, and low synchronization of price changes, considerable crosssectional dispersion, and low sensitivity to predictable or unanticipated changes in demand conditions. Qualitatively, these patterns are similar to those observed for offline prices, a finding that suggests a need for more research on the sources of price rigidities and dispersion.

Staple Trade, Real Wages, and Living Standards in Singapore, 1870–1939

ABSTRACTThis paper examines the impact of Singapore’s rise as a staple port on the city’s real wages and living standards during the late nineteenth and early twentieth century, when this British colony acted as the heartland to surrounding hinterlands. Based on an analysis of newly reconstructed nominal wage and price time series, it is shown that real wages in Singapore fluctuated substantially over this period, rising and falling with the port’s staple trade in tin and rubber. As the city transformed itself into a commercial and financial hub during the interwar period, however, Singapore’s real wages rose, though this was accompanied by a widening skill premium. Compared to its peers in Asia, the city appears to have enjoyed a relatively higher average living standard before 1900, and possibly by the late 1930s as well.

Affordability of beer and soft drinks in 15 Latin American countriesAcessibilidade a cervejas e refrigerantes em 15 países da América Latina

RESUMENObjetivosEl objetivo de este trabajo fue analizar la evolución de la asequibilidad de la cerveza y de las gaseosas para quince países de América Latina.MétodosLos datos corresponden a estadísticas oficiales de índices de precios de cerveza y gaseosas/refrescos, índice de precios al consumidor e índice de salarios nominales en frecuencia mensual. El método se basa en realizar un análisis econométrico, mediante series temporales, para medir el valor esperado de la tasa de crecimiento del indicador de asequibilidad absoluta (utilizando salarios nominales) o relativa (usando precios generales) de las gaseosas y de las cervezas.ResultadosEn nueve de los quince países analizados, la asequibilidad (absoluta o relativa), ya sea de bebidas azucaradas o cervezas, ha aumentado de forma estadísticamente significativa. En el caso de las bebidas azucaradas, la asequibilidad absoluta aumentó en cinco países (Chile, Colombia, Costa Rica, Ecuador y Uruguay) y disminuyó en México. En el caso de la cerveza, aumentó en Colombia y Ecuador, se mantuvo inalterada en Argentina, Brasil, Chile, Costa Rica y Uruguay, y se redujo en México.ConclusionesA pesar de que la mayoría de los países poseen impuestos a la cerveza y a las bebidas azucaradas, su efecto en los precios no ha sido suficiente para reducir su asequibilidad en todos los países de la muestra. Los impuestos deberían modificarse para reducir la asequibilidad de estas bebidas y afectar su consumo.

Persistence and Cyclical Dynamics of U.S. and U.K. House Prices: Evidence from Over 150 Years of Data

This paper provides a new and unique look at the dynamics and persistence of historical house prices in the US and the UK using fractional integration techniques not previously applied to housing markets. We use annual data from 1830 to 2016 for the US and 1845 to 2016 for the UK, which provides a much longer perspective on the behavior of house prices than is common in the literature, where most empirical work uses data starting from the 1980s or later. Unlike previous research, we consider two components of persistence of house prices: the component associated with the long-run trend (i.e. at frequency zero) and the component associated with the cycle (i.e. at frequency away from zero). We find convincing evidence that in the UK, housing markets incorporate two distinct poles in house price dynamics, at the zero (long-run trend) and non-zero (cyclical) frequencies. In contrast, we fail to find evidence of cyclical persistence for the US. For the sub-samples, which account for a structural break in each series, an important difference is the asynchronous pattern of the breaks, an indication of heterogeneity in the house price dynamics of the two countries and a sign that national rather than global events have played an important role. Although the house price movements of the last decade are dramatic, the greatest structural changes in the overall nominal and real price dynamics of the UK and the US appear to have taken place much earlier, in the late 1970s and early 1980s in the UK, and in the mid-1950s and early 1970s in the US. An important result, common to the whole and sub-samples, is that long-run persistence plays a greater role than cyclical persistence in explaining the dynamics of house prices in both countries. These findings have substantial implications for policy decisions. Shocks affecting the long-run component will persist for a long time, while those affecting the cyclical component will not. Thus, policymakers should adopt stronger policies with respect to long-run house price movements to create an environment whereby housing markets can readily revert to their original trends.

In Search of Fluctuations: Another Look at China's Incredibly Stable GDP Growth

China’s official real GDP growth has held surprisingly stable in recent years. As national GDP figures influence both policy analysis and political decisions, the GDP growth rate of the massive Chinese economy has also great international implications. Taking the nominal GDP growth and price index data as given and experimenting with alternative deflators, this paper attempts to track missing fluctuations in real GDP growth in recent years. Based on the constructed growth series, real GDP growth decreased during 2015–2016 and picked up in 2017. Growth has been again decelerating this year. Furthermore, the constructed growth rate seems to be well below the recent official figures. Data available at https://www.bofit.fi/en/monitoring/statistics/china-statistics/.

Long-Run Covariability

We develop inference methods about long†run comovement of two time series. The parameters of interest are defined in terms of population second moments of low†frequency transformations (“low†pass†filtered versions) of the data. We numerically determine confidence sets that control coverage over a wide range of potential bivariate persistence patterns, which include arbitrary linear combinations of I(0), I(1), near unit roots, and fractionally integrated processes. In an application to U.S. economic data, we quantify the long†run covariability of a variety of series, such as those giving rise to balanced growth, nominal exchange rates and relative nominal prices, the unemployment rate and inflation, money growth and inflation, earnings and stock prices, etc.

Risk Premiums, Nominal Rigidities and Limited Asset Market Participation

Recent developments in the asset pricing literature show that a combination of technology and distributive shocks can rationalize observed risk premia when firm ownership is concentrated in the hands of few households. We find that distributive shocks are unnecessary when nominal price rigidity is taken into account. Our results are driven by the income redistribution associated to procyclical variations in profit margins when firms ownership is concentrated, prices are sticky and technology shocks hit the economy. In this regard, standard DSGE models that allow for firm ownership concentration have the potential to replicate both business cycle facts and the moments of financial variables.

Money-Financed Fiscal Stimulus: The Effects of Implementation Lag

Previous studies argue that, based on the New Keynesian framework, a fiscal stimulus financed by money creation has a strong positive effect on output under a reasonable degree of nominal price rigidities. This paper investigates the effects of an implementation lag in a money-financed fiscal stimulus on output. We show that if a money-financed government purchase has a time lag between the decision and the implementation: (1) it may cause a recession rather than a boom when the economy is in normal times; (2) it may deepen a recession when the economy is in a liquidity trap; (3) the longer the implementation lag, the deeper the recession; and (4) the depth of the recession depends on the interest semi-elasticity of money demand. Our results imply that, if money demand is unstable, the money-financed fiscal stimulus with an implementation lag may have unstable effects on output, in contrast to the debt-financed fiscal stimulus.

Prospect theory and IPO returns in China

This paper provides a new cumulative prospect theory (PT) perspective on IPOs by proposing a median-based expected skewness measure as the reference point for potential investors. Since our sample of 837 book-built Chinese IPOs over the 2006–2012 period comprises of 30% negative and 70% positive skewness issues, this paper reveals novel findings on the left-skewed IPOs that enjoy a mean first-day return of 65.61% compared with 56.55% for the right-skewed subsample. A one standard-deviation increase in skewness lead to an increase of 10.41 percentage points in the first-day return which is virtually 50% larger than that on right-skewed IPOs. While left-skewed IPOs exhibit a significantly positive relationship between offer price discounting and (absolute) skewness, the relationship for right-skewed IPOs is insignificant. A one-standard-deviation shock to skewness deepens discounting by left-skewed IPOs by 21.21 percentage points, making such IPOs susceptible to nominal price illusion. A skewness shock attracts more than double the mean value of retail orders to the left- than to the right-skewed subsample although the latter attracts 26% more investors. Prospect theory suggests that investors in left-skewed IPOs tend to flip to exploit the deep discounting (relative to their underlying value) on the first trading day rather than gamble on possible long run gains. Relatedly, their long run return measures are independent of absolute skewness but we find significantly inverse relationships between these variables for right-skewed IPOs. Overall, our PT framework provides the basis for a more nuanced picture of the motives for IPO investment and their contrasting implications for initial and long run returns.

Penny Stocks in India

This study explored the characteristics of Indian stocks when categorized on the basis of nominal prices. Special focus is on the Penny Stocks which are the least price category. We find that penny stocks in India are categorized by higher raw returns, very low share of market capitalization and turnover and bad corporate governance. However, when adjusted for extreme returns, penny stocks generate less return compared to high denomination stocks. Penny stock returns are well explained by the standard empirical asset pricing models. However, when adjusted for corporate governance, they exhibit extra abnormal returns. The higher denomination priced stocks in India outperform the market across all the models.

Testing the validity of PPP theory for African countries

ABSTRACTThis study examines the purchasing power parity theory for 14 African countries by applying a recent composite time series method that incorporates the Fourier approximation. The structural breaks are modelled as a gradual smooth process by means of a Fourier component. The Fourier unit root test failed to find any evidence showing that real exchange rates for these 14 countries have mean-reverting tendencies. However, both cointegration and Fourier cointegration tests detect a stable long-term relation between the nominal exchange rate and relative price levels for 8 out of 14 countries; moreover, for five countries Fourier component in cointegration analysis is found to suit quite well.

Oil and the Naira: A Markov Switching Perspective

AbstractUsing a Markov switching regression model, the study investigated the relationship between oil price shocks and exchange rates movements in an oil‐exporting economy. On the strength of theoretical and empirical evidence, Nigerian naira exchange rates to US dollars were decomposed into two segmented time trends of depreciation (state 1) and appreciation (state 2). Empirical results provided evidence that exchange rate returns exhibited an asymmetric response to oil price shocks during depreciation and appreciation. We observed that, while the system is in depreciation, nominal oil prices had a positive influence on nominal USD/NGN, whereas nominal oil price shocks had no significant effect on nominal exchange rate movements during appreciation. In addition, real effective exchange rates appreciate with decreasing real oil prices but its depreciation does not depend significantly on real oil prices. Given that a decrease in nominal oil prices induces rapid naira depreciation and topples exchange rates stability, the study suggested that the government works towards a sustainable diversification of the economy to avoid continued over‐dependence on oil exports. Also, to rigorously pursue a sustainable fiscal policy regime in order to boost local productions, encourage non‐oil commodities exportation, and consequently increase avenues for influx of foreign exchange.