Asymmetric Price Adjustment in the Small

Abstract

Abstract:Analyzing a large scanner price dataset, we uncover a surprising regularitysmall price increases occur more frequently than small price decreases for price changes of up to 10¢. Furthermore, we find that inflation can explain some of the asymmetry. Inflation, however, offers a partial explanation because substantial proportion of the asymmetry remains unexplained, even after accounting for the inflation. For example, the asymmetry holds also after excluding inflationary periods from the data, and even for products whose price had not increased. The findings hold for different aggregate and disaggregate measures of inflation and also after allowing for lagged price adjustments.JEL Codes: E31; D11; D21; D80; L11; L16; M31

Price rigidity and flexibility: new empirical evidence

“…However, many data sets, it turns out, contain small price changes. In addition to current study of Lach and Tsiddon, which they have also used in their earlier studies Tsiddon, 1992, 1996), small price changes have been documented, for example, by Carlton (1986) for intermediate good price data, by Kashyap (1995) for mail-order catalogue price data, and more recently by Levy et al (2006) for retail prices of food products and by Ray et al (2006) for wholesale prices of food products.…”

“…In total, they use 27 192 price time series. The same data set has been used by Chevalier et al (2003), Levy et al (2002), Levy et al (2005Levy et al ( , 2006, Mu¨ller et al (2006), and Ray et al (2006).…”