capacity constraints and cycles in property casualty insurance markets underwriting cycles are unexpected in a structurally competitive industry where financial capital is the major determinant of output capacity arbitrage theories explain underwriting cycles as largely an artifact of institutional lags and reporting practices capacity constraint theories view insurance markets as characterized by real frictions that cause underwriting cycles by temporarily reducing the industry s capacity to insure risks arbitrage theories imply nofsystematic relationship between capacity and underwriting margins while capacity constraint hypotheses predict a negative relationship this article provides a test of the two theories by examining the empirical relationship between casacity and underwriting margins the results using data on four insurance lines generally support the capacity constraint hypothesis unanticipated decreases in capacity cause higher profitability and prices

shopping around how households adjusted food spending over the great recession over the great recession real wages stagnated and unemployment increased concurrently food prices rose sharply outstripping growth in food expenditure and leading to a reduction in calories purchased this has led to concern about rising food poverty we study british households to assess how they adjusted to changes in the economic environment we show they switched to cheaper calories implying food consumption was smoother than expenditure we use longitudinal data to quantify the way households lowered their per calorie spending and show they done this in part by increasing shopping eort and without lowering the nutritional quality of

cost of living inequality during the great recession using detailed barcode level data we construct income group specific price indices for the period of 2004 to 2010 we find substantial differences across income groups arising mainly during the great recession the annual cost of living inflation of the highest quartile has been on average 0 7 percentage points lower than that of the lowest quartile of the income distribution the difference can be explained by the way consumers adjusted their shopping behavior to mitigate the crisis we find that product quality substitution a margin mostly available to richer households is the main mechanism explaining the differences in cost of living inflation our evidence suggests that not accounting for these differences during economic downturns could lead to significant biases in the calculation of inequality and poverty measures jel classifications d12 e31 e32 we thank fernando alvarez erik hurst anil kashyap robert lucas and joseph vavra for their advice and support the paper benefited from comments and suggestions by many others including bong geun choi jorge l garcia jessie handbury sara moreira roberto robatto adriaan ten kate yike wang chen yeh and seminar participants at the university of chicago iea meeting washington university graduate student conference and the midwest macro meeting contacts david argente dargente uchicago edu munseob lee munseob uchicago edu

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

adverse selection commitment and renegotiation extension to and evidence from insurance markets with asymmetric information full commitment to long term contracts may permit markets to approach first best allocations however commitment can be undermined by opportunistic behavior notably renegotiation we reexamine commitment in insurance markets we present an alternative model which extends laffont and tirole s procurement model to address uncertainty and competition which involves semipooling in the first period followed by separation this and competing models e g single period models and no commitment models have different predictions concerning temporal patterns of insurer profitability a test using california data suggests that some automobile insurers use commitment to attract selective portfolios comprising disproportionate numbers of low risks

real rigidities and the non neutrality of money rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks and by themselves small frictions in nominal adjustment such as costs of changing prices create only small non neutralities but this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions the paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for two specific sources of real rigidity one arising from goods market imperfections and the other from labour market imperfections

environmental policy adjustment costs and behavior of the firm abstract the effects of environmental policy in the form of emission charges or emission limits on the firm s optimal choices of productive and abatement inputs are analyzed short run and long run impacts on inputs and the properties of static emission function are determined through comparative static analysis comparative dynamics reveal the properties of the cumulative emission function and the cumulative shadow cost of emission limits function

optimal monetary policy responses to relative price changes abstract an optimizing model with a flexible price sector and a sticky price sector is presented to analyze the effects of relative price changes on inflation fluctuations the relative price of the flexible price good represents a shift parameter of the new keynesian phillips curve the optimal monetary policy is to target sticky price inflation rather than a broad inflation measure although stabilizing the relative price around its efficient value is one of the appropriate goals of the central bank stabilizing sticky price inflation is sufficient for achieving this goal an optimal monetary policy for a small open economy is also discussed

the cyclicality of sales regular and effective prices business cycle and policy implications comment abstract coibion gorodnichenko and hong 2015 argue that the cpi underestimates the deceleration in consumer prices during economic downturns because the index fails to account for the reallocat

the timing and magnitude of retail store markdowns evidence from weekends and holidays we examine daily prices of eight goods at seventeen retail stores collected in ann arbor michigan over a four month period from november 1 to february 28 we focus on weekly and seasonal price patterns and on the frequency of price markdowns or sales there were frequent markdowns in the intensive shopping period prior to christmas and a tendency for such sales to occur on weekends we interpret these findings as evidence that a significant number of markdowns are timed to occur when shopping intensity is exogenously high we complement the imperfect information based motives for sales in the literature by contributing an additional element based on the role of bulk shopping and increasing returns in the shopping technology

evaluating unemployment policies what do the underlying theories tell us the paper surveys unemployment policies for advanced market economies and evaluates them by examining the predictions of the underlying macroeconomic theories the basic idea is that for the most part different unemployment policy prescriptions rest on different macroeconomic theories and our confidence in the prescriptions should depend at least in part on theories ability to predict some salient stylized facts about unemployment behavior the paper considers four types of policies laissez faire demand management policies supply side policies and structural policies copyright 1995 by oxford university press

informational rigidities and the stickiness of temporary sales abstract how do retailers react to cost changes while temporary sales account for 95 of price change in our data retail prices respond to a wholesale cost increase entirely through the regular price sales actually respond temporarily in the opposite direction from regular prices as though to conceal the price hike additional evidence from responses to commodity cost and local unemployment shocks as well as broader evidence from bls data reinforces these findings institutional evidence indicates that sales are complex contingent contracts determined substantially in advance in a standard price discrimination model these institutional practices leave little money on the table

the liability insurance market t his paper offers an overview of the u s liability insurance market and the link between its performance and developments in tort law over the last few decades the dominant feature of the insurance market has been the intermittent periods of rapidly rising premiums and cutbacks on the availability of coverage the insurance cycle appears to be increasing in amplitude and since the 1960s has been concentrated increasingly in liability lines an episode of rising premiums in the late 1960s was followed by a six year period of declining and eventually negative growth rates in total liability insurance premiums over the 1975 1977 period the annual growth rate jumped to 30 percent then followed another period of declining real premiums until premiums nearly tripled in 1984 1986 accompanied by cancellations of policies and massive withdrawal of insurers from some lines this crisis had an economic impact beyond the insurance market leading to the withdrawal of many goods and services from u s markets in mid 1987 the market began to turn again with premiums falling by as much as 40 percent for some commercial policies since then aggregate revenue from premiums has been relatively stable the liability insurance market is intertwined with the tort system in addition to providing incentives to avoid accidents the tort system allocates the risks of accident costs in providing compensation for accident victims the modern expansion of liability in tort law as described by priest in this issue represents a shift in the burden of supplying insurance from first party insurance markets to liability or third party insurance markets clearly this shift will

monetary policy trend inflation and the great moderation an alternative interpretation with positive trend inflation the taylor principle does not guarantee a determinate equilibrium we provide new theoretical results on determinacy in new keynesian models with positive trend inflation and new empirical findings on the federal reserve s reaction function before and after the volcker disinflation to find that i while the fed likely satisfied the taylor principle before volcker the us economy was still subject to self fulfilling fluctuations in the 1970s ii the us economy switched to determinacy during the volcker disinflation and iii the switch reflected changes in the fed s response to macroeconomic variables and the decline in trend inflation jel e12 e23 e31 e32 e52

the inflation persistence of staggered contracts one of the criticisms routinely advanced against models with staggered contracts is their inability to generate inflation persistence this paper finds that staggered contracts a la taylor are in fact capable of reproducing the inflation persistence implied by u s data following fuhrer and moore i capture the moments that the model needs to replicate by using the correlograms from a small vector autoregression var i estimate the contract parameters using the method of maximum likelihood the correlogram of inflation for the contract model is very close to the correlogram from the var by the same metric taylor contracts fare poorly in reproducing the comovements of inflation and output

price elasticities and demand side real rigidities in micro data and in macro models abstract high degrees of demand side real rigidities are able to generate the large monetary non neutrality found in aggregate data this paper provides micro based evidence on the key parameters governing this rigidity using european homescan data we find strong evidence for demand side real rigidity which is however significantly lower than that normally assumed in macro models in a menu cost model calibrated to our estimates we show that these estimates are associated with reasonable values for production side parameters but they are not able to generate the degree of monetary non neutrality observed in macro data

gluttony and sloth calories labour market activity and the rise of obesity the rise in obesity has largely been attributed to an increase in calorie consumption we show that official government household survey data indicate that levels of calorie consumption have declined in england between 1980 and 2013 while there has been an increase in calories from food eaten out at restaurants fast food soft drinks and confectionery overall there has been a decrease in total calories purchased households have shifted towards more expensive calories both by substituting away from home production towards market production and substituting towards higher quality foods we show that the decline in calories can be partially but not entirely rationalized with weight gain by a decline in the strenuousness of work and daily life jel d12 i12 i18

selection and monetary non neutrality in time dependent pricing models for a given frequency of price adjustment monetary non neutrality is smaller if older prices are disproportionately more likely to change selection for the age of prices provides a complete characterization of price setting frictions in time dependent models selection for older prices is weaker and non neutralities are larger if the hazard function of price adjustment is less strongly increasing selection is weaker if there is heterogeneity in price stickiness finally selection is weaker if durations of price spells are more variable in particular the taylor 1979 model exhibits maximal selection for older prices whereas the calvo 1983 model exhibits no selection

retail price dynamics and retailer heterogeneity uk evidence we examine retailer heterogeneity in price adjustment in uk supermarkets considerable variation in the price change frequency of identically bar coded products among retail chains is found decomposition analysis suggests that price adjustment is evenly split between sales and reference prices with substantive variation across retailers

sectoral price rigidity and aggregate dynamics abstract this paper studies the business cycle implications of sectoral heterogeneity in price rigidity using a highly disaggregated multi sector model the model is estimated by the simulated method of moments using a mix of aggregate and sectoral u s data the frequencies of price changes implied by our estimates are consistent with those reported in micro based studies we show that heterogeneity in price rigidity is the primary factor explaining the heterogeneity in the responses of sectoral output and inflation to a monetary policy shock we also find that ignoring sectoral heterogeneity in price rigidity leads to the mismeasurement of the relative importance of aggregate and sector specific shocks in aggregate and sectoral fluctuations

working less and bargain hunting more macro implications of sales during japan s lost decades standard new keynesian models have often neglected temporary sales in this paper we ask whether this treatment is appropriate in the empirical part of the paper we provide evidence using japanese scanner data covering the last two decades that the frequency of sales was closely related with macroeconomic developments specifically we find that the frequency of sales and hours worked move in opposite directions in response to technology shocks producing a negative correlation between the two we then construct a dynamic stochastic general equilibrium model that takes households decisions regarding their allocation of time for work leisure and bargain hunting into account using this model we show that the rise in the frequency of sales which is observed in the data can be accounted for by the decline in hours worked during japan s lost decades we also find that the real effect of monetary policy shocks weakens by around 40 due to the presence of temporary sales but monetary policy still matters

more facts about prices france before and during the great recession using microprice data we document new facts on price rigidity in france i each month 20 1 of prices are changed which compares to 24 1 in the united states excluding sales however the fraction of prices modified each month is about the same in france and in the united states around 17 ii the distribution of price changes is quite dispersed iii the frequencies of price increases and decreases contribute a lot to inflation variations and price increases are more frequent in january even when sales are excluded iv sales contribute significantly to the volatility of inflation but play a minor role in the transmission of macroeconomic fluctuations to prices and v during the great recession patterns of price adjustment were only slightly modified

the elasticity of substitution between time and market goods evidence from the great recession the elasticity of substitution between time and market goods we document a change in household shopping behavior during the great recession households purchased more on sale larger sizes and generic products increased coupon usage and shopping at discount stores we estimate that the returns to these shopping activities declined during the recession and therefore this behavior implies a significant decrease in households opportunity cost of time using the estimated cost of time and time use data we estimate a high elasticity of substitution between market expenditure and time spent on non market work we find that households smooth a sizable fraction of consumption by varying their time allocation during recessions institutional subscribers to the nber working paper series and residents of developing countries may download this paper without additional charge at www nber org

sales and monetary policy this paper analyses the efiect of monetary policy in a model where sales occur in equilibrium some consumers are loyal to a particular brand of a good others are bargain hunters as a result producers flnd it optimal to sell their goods at a normal price through some retailers and at a sale price through others the margin of adjusting the amount sold on sale is potentially very important if producers can adjust the fraction sold on sale with sticky prices and wages money is approximately neutral if we ignore the reasons behind sales but that result changes dramatically when we consider that producers optimally choose to sell some of their goods on sale owing to strategic substitutabilities in the sales decision money has strong procyclical efiects

the aggregate implications of regional business cycles during the last recession and its aftermath aggregate price growth and aggregate nominal wage growth remained robust despite the high rate of unemployment we document that u s states with weaker labor markets experienced lower price growth lower nominal wage growth and lower real wage growth during the great recession given that reliable measures of local prices do not exist we create our own state price indices using scanner data from the nielsen retail scanner database the main innovation of the paper is the development of an econometric procedure that combines cross region data with aggregate time series data to infer the underlying shocks driving both aggregate and regional business cycles applying our procedure to the great recession we find that a combination of both demand and supply shocks are necessary to account for the joint dynamics of aggregate prices wages and employment during the 2007 2012 period in contrast we find that only demand shocks are needed to explain the cross region variation the results suggest that only using cross region variation to explain aggregate fluctuations is insufficient when shocks do not have a substantive regional component

heterogeneity in the tax pass through to spirit retail prices evidence from belgium abstract on 1st november 2015 the belgian government increased the excise tax on alcoholic beverages for spirits with 40 of alcohol and bottle size of 70 cl this tax change is equivalent to an amount of 2 43 per bottle of spirits this paper studies the impact of this tax reform at the store level on the posted retail price of six major brands of spirits using a difference in differences method the estimation is based on a balanced panel of scanner data from a major supermarket chain with a 33 market share and uses the retail prices of the same brands sold in france by the same supermarket chain as a control group having information on each store location we show spatial variations in the tax pass through for homogeneous products we find that these variations are strongly related to the intensity of local competition and to a lesser extent to the proximity to the borders mainly with luxembourg which is the low price country we find that the tax was quickly passed through during the first month of tax implementation and that it was mostly over shifted however we also find that both the border and the competition effects are not instantaneous but arise several months after the tax reform these findings have important implications for alcohol control policies as they highlight that the incidence of alcohol taxation can vary greatly across space and affect differently households depending on where they live

crises in medical malpractice insurance evidence of excessive price cutting in the preceding soft market abstract prior work suggests that heterogeneous information or weak incentives for solvency could have caused some general liability insurers to charge low ex ante prices during the early 1980s and mid to late 1990s putting downward pressure on other firms prices and plausibly aggravating subsequent periods of rapid premium growth we analyse whether the 1994 1999 soft market in medical malpractice insurance led some firms to underprice grow rapidly and subsequently experience upward revisions in loss forecasts loss development which could have aggravated subsequent market crises consistent with the underpricing hypothesis the results indicate a positive relation between loss development and premium growth among growing firms underpricing was likely more prevalent among non specialist malpractice insurers

risk overhang and market behavior we show that exposure from past business transactions risk overhang can reduce activity in related business lines sometimes to the point where no new trade occurs we focus primarily on the role of overhang in nonlife insurance market disruptions our model predicts that the relative impact duration and character of supply disruptions are related to the extent of overhang these predictions are consistent with differences between the mid 1980s liability insurance crisis and the early 1990s catastrophe reinsurance crisis the overhang model predicts attributes of these crises that prior explanations relying on adverse selection do not we also discuss applications of the overhang model to disruptions in lending and securities markets

production strategies under environmental constraints in an arrow karlin model abstract the aim of the paper is to investigate how environmental policies affect the production inventory decisions of a firm optimal control theory is applied to analyze optimal production policies the environmental policy investigated in the paper is a combined emission charges and limits policy the paper modifies the results of wirl european journal of operational research 55 1991 191 200 1 for the case of this combined policy

inflation expectations as a policy tool abstract we assess the prospects for central banks using inflation expectations as a policy tool for stabilization purposes we review recent work on how expectations of agents are formed and how they affect their economic decisions empirical evidence suggests that inflation expectations of households and firms affect their actions but the underlying mechanisms remain unclear especially for firms two additional limitations prevent policy makers from being able to actively manage inflation expectations first available surveys of firms expectations are systematically deficient which can only be addressed through the creation of large nationally representative surveys of firms second neither households nor firms expectations respond much to monetary policy announcements in low inflation environments we provide suggestions for how monetary policy makers could pierce this veil of inattention through new communication strategies as well as the potential pitfalls to trying to do so

adverse selection private information and lowballing in insurance markets recent contributions to the adverse selection literature have focused on a multiperiod competitive environment in this setting a clean distinction arises between the predictions of competing models cooper and hayes extend the model of rothschild and stiglitz to multiple periods the result is a self selecting equilibrium characterized by price highballing or systematically overcharging new business kunreuther and pauly suggest that information asymmetries between competing insurance firms render such price quantity policies infeasible their model results in a pooling equilibrium that is characterized by price lowballing or systematically undercharging new business our evidence is consistent with the kunreuther and pauly model and reveals the persistence of adverse selection in the automobile insurance market copyright 1990 by the university of chicago

time use during the great recession using data from the american time use survey between 2003 and 2010 we document that home production absorbs roughly 30 percent of foregone market work hours at business cycle frequencies leisure absorbs roughly 50 percent of foregone market work hours with sleeping and television watching accounting for most of this increase we document significant increases in time spent on shopping child care education and health job search absorbs between 2 and 6 percent of foregone market work hours we discuss the implications of our results for business cycle models with home production and non separable preferences jel codes d13 e32 j22

five facts about prices a reevaluation of menu cost models are price decreases 3 the frequency of price increases covaries strongly with inflation whereas the frequency of price decreases and the size of price increases and price decreases do not 4 the frequency of price change is highly seasonal it is highest in the first quarter and then declines 5 we find no evidence of upwardsloping hazard functions of price changes for individual products we show that the first second and third facts are consistent with a benchmark menu cost model whereas the fourth and fifth facts are not

the transmission of monetary policy in a multisector economy this article constructs and estimates a sticky price dynamic stochastic general equilibrium model with heterogeneous production sectors firms in different sectors vary in their price rigidity production technology and the combination of material and investment inputs in particular firms buy inputs from all sectors using the actual input output matrix and capital flow table of the u s economy by relaxing the standard assumption of symmetry this model allows idiosyncratic sectoral dynamics in response to monetary policy shocks the model is estimated by the generalized method of moments using sectoral and aggregate u s time series

sticky prices new evidence from retail catalogs this paper presents new results on the size frequency and synchronization of price changes for twelve selected retail goods over the past 35 years three basic facts about the data are uncovered first nominal prices are typically fixed for more than one year although the time between changes is very irregular second prices change more often during periods of high overall inflation third when prices do change the sizes of the changes are widely dispersed both large and small changes occur for the same item and the sizes of these changes do not closely depend on overall inflation

prices are sticky after all abstract economists have interpreted the evidence that prices change every four months as implying that sticky prices cannot be important for monetary transmission theory implies that this interpretation is correct if most price changes are regular but not if a large fraction are temporary as in the data since regular prices are much stickier than temporary ones our models predict that the stickiness of the aggregate price level matches that in a standard calvo model or a standard menu cost model in which micro level prices change about once a year in this sense prices are sticky after all

the cyclicality of sales regular and effective prices business cycle and policy implications author s coibion olivier gorodnichenko yuriy hong gee hee abstract we study the cyclical properties of sales regular price changes and average prices paid by consumers effective prices using data on prices and quantities sold for numerous retailers across many us metropolitan areas inflation in the effective prices paid by consumers declines significantly with higher unemployment while little change occurs in the inflation rate of prices posted by retailers this difference reflects the reallocation of household expenditures across retailers a feature of the data which we document and quantify rather than sales we propose a simple model with household store switching and assess its implications for business cycles and policymakers jel d12 e31 e32 l25 l81

income induced expenditure switching abstract this paper shows that an income effect can drive expenditure switching between domestic and imported goods we use a unique latvian scanner level dataset covering the 2008 2009 crisis to document several empirical findings first expenditure switching accounted for one third of the fall in imports and took place within narrowly defined product groups second there was no corresponding within group change in relative prices third consumers substituted from expensive imports to cheaper domestic alternatives these findings motivate us to estimate a model of nonhomothetic consumer demand which explains two thirds of the observed expenditure switching estimated switching is driven by income not changes in relative prices jel e21 f14 f31 f32 i11 l81

production strategies under environmental constraints continuous time model with concave costs abstract the aim of this paper is to investigate how environmental policies in the form of emission charges or emission limits affect the production inventory decisions of a firm our framework applies control theory to analyze optimal production policies the paper modifies the results of wirl european journal of operational research 55 1991 191 to the case of concave production costs

contract length heterogeneity and the persistence of monetary shocks in a dynamic generalized taylor economy we develop the generalized taylor economy gte in which there are many sectors with overlapping contracts of different lengths in economies with the same average contract length monetary shocks will be more persistent when longer contracts are present using the bils klenow distribution of contract lengths we find that the corresponding gte tracks the u s data well when we choose a gte with the same distribution of completed contract lengths as the calvo the economies behave in a similar manner

sticky price models and durable goods the inclusion of a durable goods sector in sticky price models has strong and unexpected implications even if most prices are flexible a small durable goods sector with sticky prices may be sufficient to make aggregate output react to monetary policy as though most prices were sticky in contrast flexibly priced durables with sufficiently long service lives can undo the implications of standard sticky price models in a limiting case flexibly priced durables cause monetary policy to have no effect on aggregate output our analysis suggests that durable goods prices are the most relevant data for calibrating price rigidity jel e21 e23 e31 e52

state dependent or time dependent pricing does it matter for recent u s inflation in the 1988 2004 micro data collected by the u s bureau of labor statistics for the cpi price changes are frequent every 4 7 months depending on the treatment of sale prices and large in absolute value on the order of 10 the size and timing of price changes varies considerably for a given item but the size and probability of a price change are unrelated to the time since the last price change movements in aggregate inflation reflect movements in the size of price changes rather than the fraction of items changing price due to offsetting movements in the fraction of price increases and decreases neither leading time dependent models taylor or calvo nor 1 st generation state dependent models match all of these facts some 2 nd generation state dependent models however appear broadly consistent with the empirical patterns

the effects of emission trading on production and inventories in the arrow karlin model abstract the paper deals with the effect of introduction of tradable permits on the production inventory strategy of a firm it is assumed that the firm will minimize its costs the cost function consists of linear holding and convex production costs after introducing emission trading the cost function will contain a linear emission procurement selling cost we will compare the optimal production inventory strategy before tradable permits and thereafter the mathematical investigation is based on the well known dynamic arrow karlin model

the optimal inflation rate in new keynesian models should central banks raise their inflation targets in light of the zero lower bound we study the effects of positive steady state inflation in new keynesian models subject to the zero bound on interest rates we derive the utility based welfare loss function taking into account the effects of positive steady state inflation and solve for the optimal level of inflation in the model for plausible calibrations with costly but infrequent episodes at the zero lower bound the optimal inflation rate is low typically less than two percent even after considering a variety of extensions including optimal stabilization policy price indexation endogenous and statedependent price stickiness capital formation model uncertainty and downward nominal wage rigidities on the normative side price level targeting delivers large welfare gains and a very low optimal inflation rate consistent with price stability these results suggest that raising the inflation target is too blunt an instrument to efficiently reduce the severe costs of zero bound episodes

inertial inflation indexation and price stickiness evidence from brazil abstract this paper evaluates the inertial inflation hypothesis for brazil the hypothesis posits that indexation created a feedback mechanism such that one time supply shocks were fully transmitted into permanent changes in inflation a theoretical model is used to show that this outcome is based on the assumption of perfect price flexibility however with price stickiness indexation does not produce inertial inflation the degree of inertia is then compared for two periods one without indexation 1945 1963 and one with indexation 1969 1985 finally vector autoregressive representations are estimated for the latter period allowing for price stickiness the empirical results do not support the hypothesis

sectoral phillips curves and the aggregate phillips curve sector level phillips curves are estimated in french data there is considerable heterogeneity across sectors with vastly different estimates of the backward looking component of inflation and the duration of nominal rigidities a multi sector model of inflation dynamics is calibrated on the basis of these sectoral estimates aggregate inflation simulated on the basis of heterogeneous sectors displays comparable dynamics to actual data a comparison is drawn between the policy trade offs implied by a phillips curve based on macroeconomic estimates vs one based on a model with heterogeneous sectors the difference is sizeable

the cross sectional distribution of price stickiness implied by aggregate data we provide evidence on three mechanisms that can reconcile frequent individual price changes with sluggish aggregate price dynamics to that end we estimate a semistructural model that can extract

monetary targets real exchange rates and macroeconomic stability abstract in this paper i develop a model to determine the optimal degree of flexibility in attaining monetary targets in an economy that is affected by shocks in the labor and financial markets i then simulate the model to assess the optimal degree of monetary policy flexibility in spain a country that has adopted monetary targets rigidly since 1978 i show that the model supports the policy choice of that country i also show that the monetary authorities should attribute more importance to real exchange rate movements in choosing their policies if the spanish economy becomes more open to international trade or if the labor market becomes more flexible

services inflation dynamics and persistence puzzle in brazil a time varying parameter approach this article analyses services inflation dynamics in brazil focusing on the services inflation persistence puzzle for monthly data from january 2004 to february 2016 we apply a time varying para

the return of the liquidity effect a study of the short run relation between money growth and interest rates in this article i use band pass filters to investigate the short run relationship between money growth and interest rates i find a negative correlation between short run movements in money growth and interest rates which i interpret as evidence that the liquidity effect dominates the anticipated inflation effect

price setting in online markets basic facts international comparisons and cross border integration we document basic facts about prices in online markets in the united states and canada which is a rapidly growing segment of the retail sector relative to prices in regular stores prices in online markets are more flexible and exhibit stronger pass through 60 75 percent and faster convergence half life less than two months in response to movements of the nominal exchange rate multiple margins of adjustment are active in the process of responding to nominal exchange rate shocks properties of goods sellers and markets are systematically related to pass through and the speed of price adjustment for international price differentials

firm dynamics and pricing under customer capital accumulation abstract in a search model of firm dynamics customer accumulation is shown to affect the lifecycle of firms and the dynamics of markups in response to aggregate demand shocks in the model sellers of different sizes and productivities post dynamic pricing contracts to strike a balance between attracting new customers and exploiting pre existing ones calibrated using establishment level and micro pricing data from the u s retail sector the model provides a quantitatively good fit to the lifecycle and cross sectional properties of retail establishments further the model predicts that markups are procyclical to aggregate demand shocks with a larger contribution by small sellers

adverse selection and statistical discrimination an analysis of canadian automobile insurance abstract statistical discrimination occurs when a characteristic such as sex is used as an indicator of the risk group of an individual the theory of adverse selection is used to explain the occurrence of statistical discrimination a model of the market for collision insurance which is based on the theory of adverse selection is estimated on canadian data the results suggest that adverse selection occurs in this market simulations of the effect of prohibiting sexual discrimination in the 21 24 age group indicate that the premiums for single females would increase substantially and that a significant proportion would no longer purchase collision insurance

reference prices costs and nominal rigidities we assess the importance of nominal rigidities using a new weekly scanner dataset we find that nominal rigidities take the form of inertia in reference prices and costst defined as the most common prices and costs within a given quarter reference prices are particularly inertial and have an average duration of roughly one year even though weekly prices change roughly once every two weeks we document the relation between prices and costs and find sharp evidence of state dependence in prices we use a simple model to argue that reference prices and costs are useful statistics for macroeconomic

the effect of emission permit trading with banking on firm s production inventory strategies abstract we investigate the effect of tradable emission permits with banking on the production inventory strategy of a firm in this paper the basis of the work is the well known arrow karlin dynamic production inventory model in which the inventory holding costs are linear and production costs are non decreasing and convex functions of the production level the cost of environmental protection is taken into account in the model we assume there is an emission trading program with which firms are able to purchase their emission rights or sell them and the rights are allowed to be deposited in intertemporal trading we compare the optimal production inventory strategies of this paper with those without emission permits

monetary non neutrality in a multisector menu cost model empirical evidence suggests that as much as one third of the u s business cycle is due to nominal shocks we calibrate a multisector menu cost model using new evidence on the cross sectional distribution of the frequency and size of price changes in the u s economy we augment the model to incorporate intermediate inputs we show that the introduction of heterogeneity in the frequency of price change triples the degree of monetary non neutrality generated by the model we furthermore show that the introduction of intermediate inputs raises the degree of monetary non neutrality by another factor of three without adversely affecting the model s ability to match the large average size of price changes a single sector model with a frequency of price change equal to the median rather than the mean generates monetary non neutrality similar to that in our multisector model our multisector model with intermediate inputs generates variation in real output in response to calibrated aggregate nominal shocks that can account for roughly 23 of the u s business cycle

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

uniform pricing in us retail chains we show that most u s food drugstore and mass merchandise chains charge nearly uniform prices across stores despite wide variation in consumer demographics and competition demand estimates reveal substantial within chain variation in price elasticities and suggest that the median chain sacrifices 16 million of annual profit relative to a benchmark of optimal prices in contrast differences in average prices between chains are broadly consistent with the optimal benchmark we discuss a range of explanations for nearly uniform pricing highlighting managerial inertia and brand image concerns as mechanisms frequently mentioned by industry participants relative to our optimal benchmark uniform pricing may significantly increase the prices paid by poorer households relative to the rich dampen the response of prices to local economic shocks alter the analysis of mergers in antitrust and shift the incidence of intranational trade costs

monetary policy when potential output is uncertain understanding the growth gamble of the 1990s abstract t he fed kept interest rates low and essentially unchanged during the late 1990s despite a booming economy and record low unemployment these interest rates were accommodative by historical standards nonetheless inflation remained low how did the fed succeed in sustaining rapid economic growth without fueling inflation and inflationary expectations in retrospect it is evident that the productive capacity of the economy increased yet as events unfolded there was uncertainty about the expansion of the capacity of the economy and therefore about the sustainability of the fed s policy this paper provides an explanation for the success of the fed in accommodating growth with stable inflation in the late 1990s it shows that if the central bank is committed to reverse policy errors it makes because of unwarranted optimism inflation can remain in check even if the central bank keeps interest rates low because of this optimism in particular a price level target which is a simple way to model a commitment to offset errors can serve to anchor inflation even if the public does not share the central bank s optimism about shifts in potential output the paper shows that price level targeting is superior to inflation targeting in a wide range of situations the paper also provides econometric evidence that in contrast to earlier periods the fed has recently put substantial weight on the price level in setting interest rates moreover it shows that cpi announcement surprises lead to reversion in the price level finally it provides textual evidence that alan greenspan puts relatively more weight on the price level than inflation

staggering the optimal monetary rule and persistence abstract the purpose of this paper is to show that persistence is not an attribute that derives from the characteristics of wage and price setting alone the structure of demand the monetary rule and the welfare loss function are also crucial determinants of the time series characteristics of the model

market structure and cost pass through in retail abstract we examine the extent to which vertical and horizontal market structure can together explain incomplete retail pass through to answer this question we use scanner data from a large u s retailer to estimate product level pass through for three vertical structures national brands private label goods not manufactured by the retailer and private label goods manufactured by the retailer our approach circumvents issues associated with internal firm prices and demonstrates that accounting for horizontal market structure is important for measuring the effects of vertical integration and reduced double marginalization on pass through

price dispersion and demand uncertainty evidence from u s scanner data i use the prescott 1975 hotels model to explain variations in price dispersion across items sold by supermarkets in chicago the effect of demand uncertainty on price dispersion is highly significant and quantitatively important my estimates suggest that more than 40 of the cross sectional standard deviation of log prices is due to demand uncertainty i also find that price dispersion measures are negatively correlated with the average price but are not negatively correlated with the revenues from selling the good across stores and weeks and with the number of stores that sell the good temporary sales are modeled as a reaction to unwanted inventories that are accumulated when the realization of demand is low the effect of demand uncertainty on the frequency of temporary sales is also highly significant and quantitatively important items with more demand uncertainty tend to accumulate unwanted inventories more often and tend to have temporary sales more often

surprise party estimating the consequences of unexpected presidential election results alesina s quarterly journal of economics 102 651 678 1987 influential model of presidential elections with ideologically motivated parties attributes higher growth and lower unemployment under democratic presidents to the surprise inflation a democratic victory entails in contrast to the published literature we test this hypothesis using calcula tions of presidential election surprises consistent with the assumption of rational economic actors we confront the econometric complications attending a time series approach tak ing into account economic growth dynamics we ultimately fail to confirm the hypothesis that the level of uncertainty associated with presidential election results has an effect on economic outcomes

tradable permits and production inventory strategies of the firm abstract the paper deals with the effect of introduction of tradable permits on the production inventory strategy of a firm the basic model of arrow and karlin 1958 production over time with increasing marginal costs in arrow k j karlin s scarf h eds studies in the mathematical theory of inventory and production stanford university press stanford pp 61 69 assumes that the firm minimizes the sum of linear holding and convex production costs these costs depend explicitly on time after introducing emission trading the cost function will contain linear emission procurement selling cost we compare two optimal production inventory strategies of a firm to examine changes of optimal strategies the first strategy is the optimal solution of the arrow karlin model then we analyze this model extended with costs of tradable permits

the modern expansion of tort liability its sources its effects and its reform this paper reviews the development of tort law during the 20th century with particular attention to the broad expansion of liability since the 1970s it attempts to explain the origins of the expansion of liability to present examples of its effects on product and service markets and to analyze the extensive efforts of the past five to six years toward liability reform efforts which i conclude have had only a slight relationship to the underlying sources of modern liability problems though the empirical evidence is thin virtually all studies of the effects of specific modern rules demonstrate that modern tort law has substantially dislocated product and service markets as one might expect of an assertive legal regime founded on largely noneconomic principles as we shall see market dislocations especially for insurance have increased sharply during the past decade

identifying the influences of nominal and real rigidities in aggregate price setting behavior we formulate a generalized price setting framework that incorporates staggered contracts of multiple durations and that enables us to directly identify the influences of nominal vs real rigidities we estimate this framework using macroeconomic data for germany 1975 1998 and for the u s 1983 2003 in each case we find that the data are well characterized by nominal contracts with an average duration of about two to three quarters we also find that new contracts exhibit very low sensitivity to marginal cost corresponding to a relatively high degree of real rigidity finally our results indicate that backward looking price setting behavior such as indexation to lagged inflation is not needed in explaining the aggregate data at least in an environment with a stable monetary policy regime and a transparent and credible inflation objective

optimal sticky prices under rational inattention this paper presents a model in which price setting firms decide what to pay attention to subject to a constraint on information flow when idiosyncratic conditions are more variable or more important than aggregate conditions firms pay more attention to idiosyncratic conditions than to aggregate conditions when we calibrate the model to match the large average absolute size of price changes observed in micro data prices react fast and by large amounts to idiosyncratic shocks but only slowly and by small amounts to nominal shocks nominal shocks have strong and persistent real effects we use the model to investigate how the optimal allocation of attention and the dynamics of prices depend on the firms environment jel e 3 e5 d8

supermarket competition the case of every day low pricing every day low pricing edlp strategy has proved to be a successful innovation resulting in higher profits to supermarkets adopting it in competition with promotional pricing promo conventional wisdom attributes this success either to lower costs or to edlp better serving time constrained consumers while discouraging cherry pickers who seek promotions however it is unclear that such cost savings are being fully realized since edlp stores also engage in price promotions also continued existence of promo stores means that costs are not the only factor and they compete effectively without relying just on the cherry pickers furthermore experimental evidence suggests that a supermarket cannot obtain higher profits by merely setting constant low prices leading to the question exactly what makes edlp successful this question is of particular relevance to both academics and practitioners who have been intrigued by the success of this retailing strategy more generally the retailing issues addressed in this paper the economic analysis of competition and the empirical findings should be of interest to the broader community of researchers and managers we investigate the factors contributing to edlp s success by analyzing the competition between supermarkets through a game theoretic analysis of a market consisting of both time constrained consumers and cherry pickers key features of our model are consumers shop and purchase a basket of goods based on price announcements by stores and rational expectations of unannounced prices stores carry more than one good and compete through prices service convenience and appropriate communication strategies and no exogenous cost asymmetries we derive the conditions under which retailers choosing different strategies edlp and promo is a perfect nash equilibrium our analysis shows that the edlp store s offering of constant every day low prices is an equilibrium outcome endogenously determined successful implementation of the edlp strategy involves communication of relative basket prices implying that merely setting constant low prices is not viable we further demonstrate that while time constrained consumers find every day low prices at edlp attractive and cherry pickers the promotions at promo clientele effects are in fact more complicated specifically in equilibrium the promo store offers a higher service level as desired by time constrained consumers and the edlp store a lower service level in keeping with the needs of cherry pickers this choice of service by the two stores results in a cleaner segmentation of the market the higher relative basket price and service at the promo store results in a larger base of time constrained consumers to shop at the promo store and a larger base of cherry pickers to shop at the edlp store even though some cherry pickers continue to visit the promo store to avail of the price specials in this way our results contradict the conventional wisdom on edlp strategy as being mainly geared towards time constrained consumers finally industry profits are higher in an edlp promo equilibrium than when stores adopt identical strategies our analysis and results also offer a more complete characterization of the edlp and promo strategies indeed we show that edlp and promo strategies are positioning strategies rather than merely pricing strategies with different elements price promotions service and communications while the edlp store uses basket prices to attract both segments the promo store uses service and price specials to compete in the time constrained and cherry picking segment respectively given these different approaches of the two stores the communication strategies of the edlp and the promo stores emphasize these differences as well in this way we show as suggested by corstjens and corstjens 1994 that positioning in a retail context involves developing multidimensional strategies appealing to all segments while each element of the strategy may focus on a different consumer segment this is in contrast to the traditional view of segmentation in which different products in a product line for example are designed to appeal to different segments we complete the analysis by examining the data from the trade press and a survey conducted in a major metropolitan area these data while limited in scope support our theoretical results

the phillips curve the persistence of inflation and the lucas critique evidence from exchange rate regimes comment we present evidence from the united states and the united kingdom that the persistence of price inflation is significantly higher under managed exchange rate regimes than under gold based fixed exchange rate regimes these differences are also reflected in expectations augmented phillips curves we use a two country macro model with forward looking price setters to demonstrate that higher monetary accommodation of inflation and exchange rate accommodation of inflation differentials increase inflation persistence the evidence does not contradict this hypothesis it supports the hypothesis of forward looking price setters and highlights the empirical significance of the lucas critique jel e31 e42 f33

price stickiness along the income distribution and the effects of monetary policy abstract monetary shocks have distributional consequences if they affect relative prices across goods consumed by different households we document that the prices of the goods consumed by high income households are stickier and less volatile than those of the goods consumed by middle income households following a monetary policy shock the estimated impulse responses of high income households consumer price indices are about one third smaller than those of the middle income households we evaluate the implications of these findings in a quantitative multi sector new keynesian model featuring heterogeneous households the distributional consequences of monetary policy shocks are large and similar to those in the econometric model

consumption versus expenditure previous authors have documented a dramatic decline in food expenditures at the time of retirement we show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals using a novel data set that collects detailed food diaries for a large cross section of u s households we show that neither the quality nor the quantity of food intake deteriorates with retirement status we also show that unemployed households experience a decline in food expenditure and food consumption commensurate with the impact of job displacement on permanent income these results highlight how direct measures of consumption distinguish between anticipated and unanticipated shocks to income whereas measures of expenditures obscure the distinction

price dispersion and inflation new facts and theoretical implications abstract in workhorse macroeconomic models price dispersion is a central determinant of welfare the cost of business cycles optimal inflation and the tradeoff between inflation and output stability while price dispersion increases with inflation in the models this relationship is negative in the data due to sales prices the comovement of price dispersion and inflation for regular prices is positive a model with sales can quantitatively match the comovement in the data whereas a range of similar models without sales cannot even for regular prices these findings have important implications for welfare calculations optimal inflation and the effects of monetary shocks