the behavior of prices and inflation an empirical analysis of disaggregat price data this paper analyzes the effects of inflation on the dispersion of prices as well as other aspects of price behavior using disaggregated data on prices of foodstuffs in israel during 1978 84 we find that the effect of expected inflation on intramarket price variability is stronger than the effect of unexpected inflation we show that even in times of high inflation price quotations are not trivially short and price changes are not synchronized across firms these facts taken together confirm that there is some staggering in the setting of prices we find that the distribution of real prices is far from being uniform as many menu cost based models assume or conclude in fact as inflation increases to very high levels this distribution is not even symmetric when the annual inflation rate reaches 130 percent there are equal chances of finding real prices above or below the market average but upward deviations in the real price are further away from zero than downward ones furthermore as the annu

price changes in the euro area and the united states some facts from individual consumer price data prices of goods and services do not adjust immediately in response to changing demand and supply conditions this paper characterizes the average frequency and size of price changes in the euro area and its member countries investigates the determinants of the probability of price changes and compares the evidence for the euro area with available u s results the facts documented in this paper are based on evidence from individual price data recorded at the store level in all euro area countries except ireland and greece that is in datasets covering austria belgium finland france germany italy luxembourg the netherlands portugal and spain which together account for around 97 percent of euro area gdp the data used are the monthly price records underlying the computation of national consumer price indices and harmonized consumer price indices these data cover a large number of products selected on the basis of extensive household budget surveys

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

changes in city and suburban house prices during a period of expected school desegregation during the last decade the courts have given attention to public school segregation which results from residential segregation the precedent was established that when the past actions of school authorities in drawing attendance zones served to create or maintain school segregation desegregation plans using busing could be imposed as a remedy at the same time neighboring suburbs with their own school systems have not been included in the desegregation plans of affected cities thus creating the option of moving to the suburbs in order to avoid busing 2 this paper reports on a study of house prices in columbus ohio and neighboring suburbs during a period of increasingly imminent school desegregation most research on desegregation has examined changes in enrollment patterns such a focus yields only an indication of relative shifts in demand for housing this study directly observed changes in house prices the study used multiple listing service mls data on 5888 sales between may and august for the years 1975 through 1979 year to year comparisons were made which matched six suburbs to contiguous city neighborhoods which have similar types of housing the purpose of the study was to determine the size of any change in the ratio of city to suburban house price differentials and the timing of those changes with respect to major events in the desegregation process year to year changes in the ratio of suburban to city house prices can be expected given a relative increase in demand for suburban houses and a housing supply which is inelastic in the short run following a typical capitalization argument suburban and city house prices should in equilibrium adjust to expected school desegregation such that at the margin households are once again indifferent between a suburban or city location it was hypothesized that the greatest capitalization impact of expected desegregation would be concentrated upon large houses defined to be houses with four or more bed i gratefully acknowledge the financial support of the ohio board of realtors the research has benefited

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

heterogeneity in consumer price stickiness we examine heterogeneity in price stickiness using a large original set of individual price data collected at the retail level for the computation of the french consumer price index for that purpose we estimate at a very high level of disaggregation a piecewise constant hazard model as well as competing risks duration models that distinguish between price increases price decreases and product replacements the main findings are the following a at the product outlet type level the baseline hazard function of a price spell is nondecreasing b cross product and cross outlet type heterogeneity is pervasive both in the shape and the level of the hazard function as well as in the impact of covariates c there is strong evidence of state dependence especially for price increases d there is an asymmetry because determinants of price increases differ from those of price decreases

the impact of school racial compositions on neighborhood racial compositions evidence from school redistricting i use data surrounding public school redistricting to study how school racial compositions affect neighborhood racial compositions this redistricting followed from the end of court ordered busing for racial desegregation significantly changing the racial composition of the assigned school for many neighborhoods over a 5 year period the impact of an increase in the percent black of the assigned elementary school on the percent black of the neighborhood was positive the effects increased over time consistent with a simple model of short run neighborhood racial dynamics these results have implications for potential effects of school racial desegregation policy changes on neighborhood racial compositions jel h75 i28 r23

price setting in the euro area some stylized facts from individual producer price data this paper summarizes the microevidence on the setting of producer prices in the euro area the main findings are i 21 of producer prices are adjusted each month ii producer prices are changed more frequently and by smaller amounts than consumer prices even after controlling for product characteristics iii price decreases are relatively frequent iv inflation correlates positively with the difference between the frequency of price increases and decreases and v there is substantial variation in price flexibility across sectors which can be explained in part by differences in the cost structure the degree of competition and the level of sectoral inflation

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

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

inflation targeting what inflation rate to target abstract in an economy with nominal rigidities in both an intermediate good sector and a finished good sector and thus with a natural distinction between cpi and ppi inflation rates a benevolent central bank faces a tradeoff between stabilizing the two measures of inflation a final output gap and unique to our model a real marginal cost gap in the intermediate sector so that optimal monetary policy is second best we discuss how to implement the optimal policy with minimal information requirement and evaluate the robustness of these simple rules when the central bank may not know the exact sources of shocks or nominal rigidities a main finding is that a simple hybrid rule under which the short term interest rate responds to cpi inflation and ppi inflation results in a welfare level close to the optimum whereas policy rules that ignore ppi inflation or ppi sector shocks can result in significant welfare losses

intermediate goods and business cycles implications for productivity and welfare this paper presents an aggregate demand driven model of business cycles that provides a new explanation for the procyclicality of productivity and simultaneously predicts large welfare losses from monetary nonneutrality the key features of the model are an input output production structure imperfect competition countercyclical markups and for some results state dependent price rigidity true technical efficiency is procyclical even though production takes place with constant returns without technology shocks or technological externalities the paper has observable implications that distinguish it empirically from related work these implications are generally supported by data from u s manufacturing industries copyright 1995 by american economic association

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

synchronization of price changes by multiproduct firms evidence from canadian newspaper prices abstract using data for canadian daily newspapers we find that price changes of papers owned by the same firm are synchronized on the other hand independently owned newspapers do not appear to change their prices together

some evidence on the adjustment of producer prices we document producer price adjustment using a low inflation micro price dataset on average 24 of prices adjust each month with an average increase decrease of 6 producer prices adjust more frequently than consumer prices but their size of adjustment is typically smaller sectoral heterogeneity in the frequency of price adjustment is strongly related to heterogeneity in the cost structure fluctuations in aggregate producer price inflation occur to a large extent through variation in the relative share of upward and downward price adjustment

school quality and residential property values evidence from vancouver rezoning abstract this study utilizes changes in the catchment areas of public schools in vancouver british columbia to measure the residential price capitalization of school quality specifications that employ repeat sales methods to control for time invariant neighborhood effects and disaggregated price indexes to capture time varying neighborhood price appreciation reveal significant effects of secondary school performance on residential prices however when we add controls for long run price trends in rezoned areas only prices of residences likely to be purchased by high income families appear to have been affected by changes in school quality induced by rezoning

why are so many goods priced to end in nine and why this practice hurts the producers abstract the widespread phenomenon of goods being priced at d dollars and 99 cents is explained without abandoning the assumption of full rationality and it is shown that as a consequence of such pricing it is the producers who are generally worse off

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

price rigidities and market structure conventional wisdom has it that a large part of the explanation of keynesian unemployment is the observed rigidities of wages and prices what has been lacking however is a satisfactory theory or conjunction of theories which explains how wages and prices can be at non market clearing levels the objective of this paper is to sketch out several alternative theoretical explanations of this phenomenon each in contrast with keynesian theory is consistent with the observation that as the economy goes into a recession real product wages do not increase and may in fact decrease all of the theories assume rational profit maximizing firms and all entail some important departure from the standard competitive paradigm the first three explanations represent minor adaptations of standard models

public school reform expectations and capitalization what signals quality to homebuyers author affiliation velma zahirovic herbert department of housing and consumer economics university of georgia 213 dawson hall athens ga 30602 3622 usa e mail vherbert uga edu corresponding author geoffrey k turnbull department of economics andrew young school of policy studies georgia state university p o box 3992 atlanta ga 30302 3992 usa e mail gturnbull gsu edu acknowledgment we would like to thank christopher bollinger and two anonymous referees for their helpful comments the authors are responsible for any errors 1 introductioneducation is one of the most important services provided by local governments low test scores high dropout rates high teacher turnover rates and other problems indicate that large urban school districts in the united states serve their students inadequately these deficiencies provide incentives for affluent families to leave cities for the suburbs or to move their children to private schools when these families move urban tax bases and economic activity are reduced when good students move to private schools the average academic quality of the remaining public school students declines which can reduce the quality of the education received in the public schools through influence on peer group effects and declining parental involvement and political support for these reasons education reform remains a key concern in urban areas this paper draws on local education reforms that occurred in east baton rouge parish louisiana in 1996 and 2001 to examine several questions left unresolved in the capitalization literature especially the literature concerned with how housing markets respond to different types of government supplied information about school quality two policy events in the school district provide a rare opportunity in this regard changes ordered by the federal court supervising the school district present natural experiments for observing the extent to which school characteristics are reflected in the housing market more importantly for our purposes the setting and the two policy events themselves highlight the roles of home owners expectations on measured capitalization as a legacy of a 40 year desegregation lawsuit the local school system was under direct federal court control for more than 15 years in the years preceding our first policy event students were randomly assigned to individual schools in an effort to equalize racial composition a method that eliminated school quality as a location specific house attribute e g it was not unusual for different children in the same family to attend different schools 1 in a surprise move in the summer of 1996 the presiding judge ordered the elimination of random school assignment in favor of stable attendance zones thereby creating a direct tie between house location and school quality this change from random to zone school assignment represents a natural experiment and an opportunity to observe how the local housing market values the policy change further in light of the history of the 40 year federal lawsuit and 15 years of direct court control of the local school system the public had little confidence in the federal court s ability to improve education quality the overwhelming defeat of a major school tax referendum following the court s creation of school attendance zones is evidence of this lack of confidence this is precisely the type of environment in which we expect to find little or no systematic capitalization of measured school quality differences there is evidence that public confidence in the school system improved during the next few years enrollments ceased their inexorable declines and stabilized within a few years and more importantly voters passed a major school tax referendum at that time as well both observations signal an important reversal in public opinion regarding the perceived viability of school reform

what is new keynesian economics this research was supported by the national science foundation i am grateful to george williams for help with the data and to steven allen laurence ball olivier j blanchard timothy bresnahan charles calomiris dennis carlton robert chirinko russell cooper stanley fischer herschel grossman r glenn hubbard david laidler john leahy assar lindbeck n gregory mankiw david romer julio rotemberg dennis snower john taylor andrew weiss and two anonymous referees for comments on one or more earlier drafts i am also indebted to michael parkin and edmund s phelps for helping to establish the etymology of the phrase new keynesian

price adjustment and market structure abstract this paper shows how the extent of price inertia depends on the form of market competition we first establish that the speed of price adjustment depends on the curvature of the profit function in the region around the optimum price we then show how this depends on market structure we prove the following results 1 1 the speed of price adjustment depends positively on the price elasticity of demand 2 2 the speed of price adjustment depends positively on the number of firms in a market and 3 3 the speed of price adjustment depends negatively on the degree of collusion between firms

default and liquidation timing under asymmetric information abstract we consider a dynamic model in which shareholders delegate the running of a firm to a manager who observes private information about the firm s running and liquidation costs we analytically derive the optimal compensation scheme contingent on the firm s cost structure information asymmetries can change the high cost firm s bankruptcy choice and timing most notably even if the liquidation value is higher than the face value of debt the high cost firm can choose default rather than liquidation to reduce the manager s information rent this can lead to the counterintuitive result that the debt value increases beyond the face value as the firm approaches default and that it jumps upward at the default time information asymmetries accelerate negative liquidation and delay positive liquidation whereas they accelerate default the optimal leverage ratio of the asymmetric information case becomes higher than that of the symmetric information case because more debt mitigates the loss due to information asymmetries our results can potentially account for many empirical findings

state dependent pricing and the general equilibrium dynamics of money and output economists have long suggested that nominal product prices are changed infrequently because of fixed costs in such a setting optimal price adjustment should depend on the state of the economy yet while widely discussed statedependent pricing has proved difficult to incorporate into macroeconomic models this paper develops a new tractable theoretical state dependent pricing framework we use it to study how optimal pricing depends on the persistence of monetary shocks the elasticities of labor supply and goods demand and the interest sensitivity of money demand

sticky prices the impact of regulation abstract this paper finds that approximately one third of the items in the cpi are governed by price regulations that can slow and add noise to the response of prices to changes in cost or demand conditions consequently regulation is a possible partial explanation of sticky prices in the overall rate of inflation and delayed response to changes in the money supply a survey is used to decompose the cpi into freely determined and regulated sub components evidence is provided that prices in the regulated sector of the economy respond approximately two quarters after prices in the freely determined sector thereby contributing a source of stickiness in overall inflation and in the response of inflation to monetary policy