Size Of Price Adjustment Research Articles

Price Setting in Chile: Micro Evidence from Consumer On-Line Prices During the Social Outbreak and Covid-19

In this paper we analyze the price setting behavior in Chile by using scraped data from public websites of the main retailers including supermarkets, a pharmacy retailer and car dealerships. The data collection started in July 2019 and the dataset covers two major recent events: (1) the social outbreak and (2) the state of emergency declaration due to Covid-19, both episodes led to disruptions in the economy. With information on product varieties that accounts for 22% of the CPI basket, we document several empirical findings as regards price setting behaviour in terms of stickiness, that is, frequency, implied duration and the size of price adjustments. We find that in spite of facing large shocks, prices adjusted very little, at a lower frequency and at a smaller size than prior to these two events. We also find that there was a reduction on product variety availability on-line, a typical feature that also has been found during natural disasters such as earthquakes. The reduction in product availability poses additional difficulties to construct CPI indexes and to properly capture price rigidities, which are relevant for monetary policy.

Inflation and Price Adjustments: Micro Evidence from Norwegian Consumer Prices 1975–2004

This is the first paper documenting the frequency and size of price adjustments using micro data from both the high-inflation period in the 1970s and 1980s, and the period of low inflation since the early 1990s. When inflation is high and volatile, prices change more frequently and in smaller magnitudes. When inflation is low and stable, prices change less frequently but in larger magnitudes. The frequency of price changes is more important for the variation in inflation when inflation is high and volatile. When inflation is low and stable, the magnitude of the price changes is more important than the frequency. (JEL E31, E32, L11)

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Inflation and Price Adjustments: Evidence from Norwegian Consumer Price Data 1975-2004

I document the frequency and size of price adjustments using thirty years of monthly data covering both high- and low-inflation periods. Prices increase more frequently in smaller amounts when inflation is high, and less frequently but in larger amounts when inflation is low. A novel decomposition of the inflation rate shows that when inflation is high and volatile the frequency of price changes is more important for the variation in inflation than is the magnitude of price changes. When inflation is low and stable the magnitude of the price changes is more important. Monetary policy analysis assuming an exogenous probability of changing prices are thus subject to the Lucas critique.

Closely Competing Firms and Price Adjustment: Some Findings from an Online Marketplace*

AbstractWe investigate retailers' price‐setting behavior using a unique dataset containing by‐the‐second records of prices offered by closely competing retailers on a major Japanese price‐comparison website. First, we find that, when the average price of a product across retailers falls rapidly, the frequency of price adjustments increases, and the size of price adjustments becomes larger. Second, we find positive autocorrelation in the frequency of price adjustments, implying that there tends to be clustering where price adjustments occur in succession. In contrast, there is no such autocorrelation in the size of price adjustments. These two findings indicate that the behavior of competing retailers is characterized by state‐dependent pricing rather than time‐dependent pricing.

Microfoundations of Inflation Persistence in the New Keynesian Phillips Curve

This paper proposes a stochastic general equilibrium model that endoge­nously generates inflation persistence. We assume that although firms change prices periodically, they face convex costs that preclude optimal adjustment. In essence, the model assumes that price stickiness arises from both the frequency and size of price adjustments. The model is estimated using Bayesian techniques, and the results strongly support both sources of price stickiness in the U.S. data. In contrast with traditional sticky price models, the framework yields inflation inertia, a delayed effect of monetary policy shocks on inflation, and the observed reverse dynamic correlation between inflation and economic activity.

The frequency and size of price adjustment: microeconomic evidence

AbstractThis paper presents direct, non‐parametric microeconomic evidence on pricing behavior and evaluates the findings in light of theories of nominal price rigidity. The main issues examined include the durability of price quotations and the size of price changes. The analysis is based on a unique high‐frequency panel data set of consumer prices recorded in 1993–1996 in Hungary. The results indicate that price adjustment patterns in the sample are primarily consistent with implications of two‐sided (S,s) pricing models. Copyright © 2007 John Wiley & Sons, Ltd.

Price setting behaviour in Spain: Evidence from consumer price micro-data

This paper analyses the price setting behaviour of Spanish firms, using a large dataset that contains over 1.1 million price records. It identifies differences in the frequency and size of price adjustments across types of products and explores how these general features are affected by specific factors: seasonality, the level of inflation, changes in indirect taxation and the use of attractive pricing. We find that prices do not change often, but do so by a large amount, and there is a marked heterogeneity across products. Moreover, the high frequency of price reductions suggests that there is no strong downward rigidity.

Price Setting Behavior in Spain: Stylized Facts Using Consumer Price Micro Data

This paper identifies the basic features of the price setting mechanism in the Spanish economy, using a large dataset that contains over 1.1 million price records and covers around 70% of the expenditure on the CPI basket. In particular, the paper identifies differences in the frequency and size of price adjustments across types of products and explores how these general features are affected by certain specific factors: seasonality, the level of inflation, changes in indirect taxation and the practice of using psychological and round prices. We find that prices do not change often but do so by a large amount, although there is a marked heterogeneity across products. Moreover, the high frequency of price reductions suggests that there is no strong downward rigidity. Our evidence also supports the use of time and state-dependent pricing strategies.

Endogenous fixprices and sticky price adjustment of risk-averse firms

A risk-averse price-setting firm which knows the quantity demanded at the status quo price but has imperfect information otherwise may choose not to change it although an otherwise identical risk-neutral firm would do so, provided the variance of the firm's subjective probability distribution over quantities demanded as a function of price displays a kink at the status quo. This is equivalent to risk aversion of order one. When no such endogenous fixprice exists, the size of price adjustment still tends to zero as risk aversion tends to infinity, and to any arbitrarily small menu cost there exists a degree of risk aversion so that the firm will not adjust.

Aggregation and Optimization with State-Dependent Pricing

The literature on the aggregation of (S, s) policies has ignored the impact of aggregate behavior on the individual's optimization problem. In the case of pricing, the feedback effects are clear. Not only do pricing strategies determine the evolution of the price level, but the evolution of the price level also influences the optimal pricing strategies. In this paper, we provide a consistent treatment of aggregation and optimization. We use this model to analyze three issues in the menu cost pricing literature: the relationship between strategic complementarity and the real effects of money; the relationship between the variance of the money supply and the correlation between money and output; and the relationship between the cost of price adjustment and the size of price adjustment. QUESTIONS CONCERNING THE DYNAMICS of aggregate variables such as prices, employment, investment, and consumption represent the core of business cycle analysis. One striking feature of these variables is the radical difference between properties of these aggregates and the nature of the individual behavior that underlies them. The behavior of a firm's prices, investment and employment, and the behavior of an individual's consumption all involve frictional elements that lead to discrete adjustment at the microeconomic level. Heterogeneity among individuals, however, tends to smooth the behavior of the corresponding aggregates. In recent years, a large body of research has developed to examine the manner in which microeconomic frictions influence aggregate dynamics. One of the centerpieces of this research has been the (S, s) model developed by Arrow, Harris, and Marschak (1951). The key element of this model is the state dependence of individual decisions. Agents act when a state variable crosses some critical threshold which balances the cost and benefits of adjustment. The aggregate implications of this form of microeconomic behavior have been analyzed by Blinder (1981), Caplin (1985), and Mosser (1991) in the context of inventory dynamics; by Caplin and Spulber (1987), Caballero and Engel (1991, 1993), and Caplin and Leahy (1991) in the context of prices; and by Bertola and Caballero (1990), Caballero (1993), and Eberly (1994) in the context of con- sumer durables. One of the most limiting aspects of these models is that they focus exclusively on the impact that microeconomic inertia has on aggregate dynamics. They 1We would like to thank Michael Harrison, loannis Karatzas, John Leahy Sr., Andreu Mas-Colell, a co-editor and four anonymous referees for helpful discussions and comments, and the National Science Foundation and the Sloan Foundation for financial support.