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

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

convenient prices currency and nominal rigidity theory with evidence from newspaper prices abstract certain items prices are often set to simplify and expedite transactions by coinciding with available monetary units requiring few pieces of money or requiring little change in this sense these prices are more convenient than other proximate prices this paper models a firm that explicitly incorporates convenience into its pricing decisions where convenience is quantified by the number of currency units in a transaction and illustrates the theoretical behaviors that can arise newspaper cover price data empirically support the theory across a broader range of goods and services convenience appears to play a role in effecting above average nominal price rigidity

rigid prices evidence from u s scanner data this paper uses over two years of weekly scanner data from two small us cities to characterize time and state dependence of grocers pricing decisions in these data the probability of a nominal adjustment declines with the time since the last price change even after controlling for heterogeneity across store product cells and replacing sale prices with regular prices we also detect state dependence the probability of a nominal adjustment is highest when a store s price substantially diers from the average of other stores prices however extreme prices typically reflect the selling store s recent nominal adjustments rather than changes in other stores prices

price presentation effects in purchases involving trade ins abstract when a new purchase involves trading in an old item the prices of component transactions may be presented in different ways the authors report three studies that examine how different price presentations influence evaluations and choice in an otherwise equivalent overall exchange although consumers play both buyer and seller roles in purchases involving trade ins the authors find that consumers evaluation of the overall exchange typically places more weight on the price of the new purchase than the trade in however they also show that the weights can be shifted systematically by 1 directly manipulating the importance of the trade in and 2 indirectly priming a seller vs buyer mind set in these instances consumers place more weight on the trade in price than the price of the new purchase

monetary policy for inattentive economies we offer a contribution to the analysis of optimal monetary policy we begin with a critical assessment of the existing literature arguing that most work is based on implausible models of inflation output dynamics we then suggest that this problem may be solved with some recent behavioral models which assume that price setters are slow to incorporate macroeconomic information into the prices they set a specific such model is developed and used to derive optimal policy in response to shocks to productivity and aggregate demand optimal policy is price level targeting base drift in the price level which is implicit in the inflation targeting regimes currently used in many central banks is not desirable in this model when shocks to desired markups are added optimal policy is flexible targeting of the price level that is the central bank should allow the price level to deviate from its target for a while in response to these supply shocks but it should eventually return the price level to its target path optimal policy can also be described as an elastic price standard the central bank allows the price level to deviate from its target when output is expected to deviate from its natural rate

output effects of inflation with fixed price and quantity adjustment costs i introduction there is convincing evidence that fixed costs of price adjustment may be large levy et al 1997 found such costs to be 0 7 of a firm s revenue and zbaracki et al 2004 found them to be 1 22 in the presence of fixed costs of price adjustment a monopolistic firm does not adjust its nominal price continuously with the result that the real price and output generally deviate from their static monopoly level at low inflation rates the average output is higher than the static monopoly output if there is positive discounting danziger 1988 and depends on higher order derivatives of the profit and demand functions if there is no discounting benabou and konieczny 1994 1 most of the literature assumes that only price adjustments are costly while output can be continuously adjusted without cost however bresnahan and ramey 1994 document that there may be large fixed costs of quantity adjustments relatedly many publications show that adjusting labor and capital inputs involves significant fixed costs 2 such costs may derive from loss of organizational capital baily et al 2001 jovanovic and rousseau 2001 as well as from job protection rules severance pay and legal and administrative complications in a framework with both price and quantity adjustment costs andersen 1995 and andersen and toulemonde 2004 demonstrate that only intermediate size shock but not large or small shocks may affect output for a constant inflation rate danziger 2001 shows that a firm s permanent production decreases with inflation at low inflation rates if discounting is positive and danziger and kreiner 2002 that output capacity decreases with inflation if the elasticity of demand is constant and there is no discounting see also danziger 2003 the purpose of this article is to provide a simple general characterization of the output effects of a constant inflation rate if both price and quantity adjustments involve fixed costs it is assumed that quantity adjustments are at least as costly as price adjustments which implies that a firm s production is held constant at a permanent level 3 each firm then keeps its nominal price unchanged in periods of equal length and the nominal price is adjusted so that the initial real price is the same in each period thus a firm s optimal strategy consists of the initial real price the duration of the periods with unchanged nominal price and the permanent level of production the article shows that in the absence of discounting the effect of inflation on the aggregate production depends on how fast firms marginal real revenue decreases with demand and that this effect is fully determined by the elasticity of the marginal real revenue with respect to demand thus aggregate production decreases with inflation if the elasticity of the marginal real revenue always exceeds minus unity increases with inflation if the elasticity of the marginal real revenue is always less than minus unity and is invariant to inflation if the elasticity of the marginal real revenue always equals minus unity several studies have found that the comovement between output and prices is typically negative in the long run cooley and ohanian 1991 den haan 2000 den haan and sumner 2004 fiorito and kollintzas 1994 within the framework of the present model the negative comovement indicates that the empirically relevant situation is when the elasticity of the marginal real revenue always exceeds minus unity this will be the case among others if demand functions exhibit a constant price elasticity less than minus unity as assumed in danziger and kreiner 2002 ii the model consider an economy with a unit continuum of identical consumers and a unit continuum of monopolistic firms producing differentiated perishable products each firm and its product are indexed by i which is uniformly distributed on 0 1

menu costs posted prices and multiproduct retailers we use a unique store level data set to directly measure menu costs and to study the price change process at a large u s drugstore chain we compare and contrast the magnitude of these measures with similar measures from four large u s supermarket chains we find that 1 the actual magnitude of menu costs as a share of revenues 2 menu costs per price change 3 the frequent use of promotional pricing and 4 the use of weekly pricing rules are similar across both retail formats given that the main common features of these two types of retail formats are that i they both use posted prices and ii both are multiproduct retailers selling a large number of products our findings suggest that the magnitude of the menu cost components we measure and the price change practices we document may be generalizable across retail formats with these two features

an empirical analysis of latitude of price acceptance in consumer package goods scanner panel data analyses for sweetened and unsweetened drink categories with four brands in each support the presence of a region of price insensitivity around a reference price the analyses also suggest that consumers with higher average reference price have a wider latitude of price acceptance consumers with a higher frequency of purchase i e shorter average interpurchase time interval are found to have a narrower latitude of price acceptance because they are more aware of the range of price distributions finally consumers with a higher average brand loyalty have a wider latitude of price acceptance demonstrating greater tolerance of price fluctuations

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

altruistic dynamic pricing with customer regret altruistic dynamic pricing with customer regret a model is considered in which firms internalize the costly regret that consumers experience when prices change unexpectedly this regret is greater when prices change by more and this can explain why the actual size of price increases for firms with rigid prices is less sensitive to inflation than in models with fixed costs of changing prices regret costs of this form also lead to more variable price changes than fixed costs do last the practice of announcing price increases in advance is easier to rationalize with regret concerns by consumers than with more standard approaches to price rigidity

optimal pricing with costly adjustment evidence from retail grocery prices in many theoretical models it is assumed that there are costs associated with adjusting prices in this paper the existence type and magnitude of such costs are investigated empirically a discrete choice dynamic programming model that nests fixed and variable costs is developed and econometric estimates of the adjustment cost function are obtained the data used to implement the model consist of weekly retail prices and sales of three brands of saltine crackers sold by four chains of grocery stores in a small u s town the study has several distinguishing characteristics first the data are highly disaggregate at the level of brand and store second variables are sampled at weekly intervals third the model nests fixed and variable adjustment costs and can therefore determine their relative importance finally the discrete choice model is both structural and dynamic

the magnitude of menu costs direct evidence from large u s supermarket chains we use store level data to document the exact process of changing prices and to directly measure menu costs at five multistore supermarket chains we show that changing prices in these establishments is a complex process requiring dozens of steps and a nontrivial amount of resources the menu costs average 105 887 year per store comprising 0 70 percent of revenues 35 2 percent of net margins and 0 52 price change these menu costs may be forming a barrier to price changes specifically 1 a supermarket chain facing higher menu costs due to item pricing laws that require a separate price tag on each item changes prices two and one half times less frequently than the other four chains 2 within this chain the prices of products exempt from the law are changed over three times more frequently than the products subject to the law in principle fixed costs of changing prices can be observed and measured in practice such costs take disparate forms in different firms and we have no data on their magnitude so the theory can be tested at best indirectly at worst not at all alan blinder 1991 p 90

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

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

a dynamic economy with costly price adjustments this paper studies a general equilibrium model of a dynamic economy with menu costs each firm s productivity is exposed to idiosyncratic and aggregate productivity shocks around a trend and the money supply to monetary shocks around a trend all consumption pricing and production decisions are based on optimizing behavior there exists a staggered markov perfect equilibrium with prices determined by a two sided s s markup strategy the paper analyzes the optimal markup strategy and investigates the dynamics of the price index and the aggregate output the welfare consequences of the uncertain aggregate productivity and money supply are also examined

when little things mean a lot on the inefficiency of item pricing laws abstract item pricing laws ipls require a price tag on every item sold by a retailer we study ipls and assess their efficiency by quantifying their costs and comparing them to previously documented benefits on the cost side we posit that ipls should lead to higher prices because they increase the costs of pricing and price adjustment we test this prediction using data collected from large supermarket chains in the tri state area of new york new jersey and connecticut we find that ipl store prices are higher by about 20 25 per item on average as a control we use data from stores that use electronic shelf labels and find that their prices fall between ipl and no ipl store prices we compare the costs of ipls to existing measures of the benefits and find that the costs are an order of magnitude higher than the upper bound of the estimated benefits

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

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

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

price points and price rigidity abstract we study the link between price points and price rigidity using two data sets weekly scanner data and internet data we find that 9 is the most frequent ending for the penny dime dollar and ten dollar digits the most common price changes are those that keep the price endings at 9 9 ending prices are less likely to change than non 9 ending prices and the average size of price change is larger for 9 ending than non 9 ending prices we conclude that 9 ending contributes to price rigidity from penny to dollar digits and across a wide range of product categories retail formats and retailers

political economy of commuting subsidies abstract we study the political economy of commuting subsidies in a model of a monocentric city with two income classes depending on housing demand and transport costs either the rich or the poor live in the central city and the other group in the suburbs commuting subsidies increase the net income of those with long commutes or high transport costs they also affect land rents and therefore the income of landowners the paper studies how the locational pattern of the two income classes and the incidence of landownership affects the support for commuting subsidies

patterns of rightmost digits used in advertised prices implications for nine ending effects analysis of the rightmost digits of selling prices in a sample of retail price advertisements confirmed past findings indicating the overrepresentation of the digits 0 5 and 9 the high cognitive accessibility of round numbers can account for the overrepresentation of 0 and 5 ending prices and suggests the existence of two effects that could account for the overrepresentation of 9 ending prices 1 a tendency of consumers to perceive a 9 ending price as a round number price with a small amount given back and 2 a tendency of consumers to underestimate a 9 ending price by encoding it as the first round number evoked during incomplete left to right processing analysis of the patterns of rightmost digits observed in the sample provides supportive evidence particularly for the second of these two 9 ending effects

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

inflation and costly price adjustment a study of canadian newspaper prices the paper studies the effect of inflation on price behaviour using price data from canadian daily newspapers we test the sheshinski and weiss 1977 monopoly price adjustment model on a sample of monopolistic as well as oligopolistic newspapers in contrast to earlier studies that used data from oligopolistic or monopolistically competitive markets the results depend crucially on the assumptions about how often the firm collects information and revises its optimal pricing policy with infrequent policy revisions the results for monopoly newspapers support the model the results for oligopoly newspapers are similar