Time-Dependent versus State-Dependent Pricing: A Panel Data Approach to the Determinants of Belgian Consumer Price Changes

Aucremanne, Luc

doi:10.2139/ssrn.1691469

Cited by 161 publications

(53 citation statements)

References 53 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Blanchard (1987) emphasizes different speeds of price adjustment at the aggregate and disaggregate level. Aucremanne and Dhyne (2005) and Altissimo et al (2006Altissimo et al ( , 2009 suggest price setting is heterogeneous across product categories. This heterogeneity is likely to lead to bias in aggregation and in particular to greater evidence of persistence of inflation differentials (see Altissimo et al 2006Altissimo et al , 2009; with respect to inflation and Imbs et al 2005a, b;Pesaran et al 2009 with respect to PPP).…”

Section: Inflation Convergencementioning

confidence: 99%

Euro area inflation: aggregation bias and convergence

Byrne

Fiess

2010

Rev World Econ

View full text Add to dashboard Cite

Monetary policy of the European Monetary Union targets aggregate euro area inflation. Concerns are growing that a focus on aggregate inflation may cause national inflation rates to diverge. While different explanations for diverging aggregate euro area inflation have been brought forward, the very impact of aggregation on divergence has, however, not been studied. We find a striking difference in convergence depending on the level of aggregation. While aggregate national inflation rates are diverging, disaggregate inflation rates are converging. We find that aggregation appears to bias evidence towards non-convergence. Our results are consistent with prominent theoretical and empirical evidence on aggregation bias.

show abstract

Section: Inflation Convergencementioning

confidence: 99%

Euro area inflation: aggregation bias and convergence

Byrne

Fiess

2010

Rev World Econ

View full text Add to dashboard Cite

show abstract

“…For recent surveys of this literature, see Kackmeister (2002), Willis (2003), and Wolman (2006). 2 See also the survey studies of the European Central Bank's Inflation Persistence Network (IPN), including Álvarez and Hernando (2004), Aucremanne and Dhyne (2005), Baumgartner, et al (2005), and Lünnemann and Mathä (2005). These are summarized in Fabiani, et al (2004).…”

Section: Introductionmentioning

confidence: 99%

Price Points and Price Rigidity

Lévy

Lee²,

Chen

et al. 2011

Review of Economics and Statistics

View full text Add to dashboard Cite

Although the existing literature in economics and marketing offers growing evidence on the use of price points, there is a lack of direct evidence on the link between price points and price rigidity. We examine this issue in the retail setting using two datasets. One is a large weekly transaction price dataset, covering 29 product categories over an eight-year period from a large US supermarket chain. The other is from the Internet, and includes daily prices over a two-year period for hundreds of consumer electronic products with a wide range of prices. Across the two datasets, we find that 9 is the most frequently used price-ending for the penny, dime, dollar and the ten-dollar digits. Exploring the relationship between price points and price rigidity in these datasets, we find that the most common price changes are in multiples of dimes, dollars, and tendollar increments. When we econometrically estimate the probability of a price change, we find that 9-ending prices are at least 24 percent (and as much as 73 percent) less likely to change in comparison to prices ending with other digits. We also find that the average size of change of 9-ending prices are systematically larger when they do change, in comparison to non 9-ending prices. This link between price points and price rigidity is remarkably robust across the wide variety of price levels, product categories, and retailers examined in this study. To make sense of these findings, we offer a behavioral explanation building on the emerging literature on rational inattention. We argue that consumers may find it rational to be inattentive to the rightmost digits of retail prices because of the costs of processing price information. In response, firms may find it profitable to set the rightmost digits at 9, and therefore, be rigid in their pricing around these price points. We conclude that price points are a significant source of retail price rigidity in our datasets, and that rational inattention can offer a plausible explanation for their presence.

show abstract

“…This is due to a composition effect: as time elapses the share of less flexible firms decreases thereby reducing the average frequency of price adjustment. Similarly, a number of micro studies show that the hazard functions do become flatter or become moderately increasing when one controls for heterogeneity (Aucremanne andDhyne 2005, Dias, Robalo Marques andSantos Silva 2005). Accordingly, a Calvo-mixture model can account for a number of the micro stylised facts: (i) the largely random nature of price adjustments; (ii) the common finding of declining unconditional hazard rates; and (iii), importantly, the robust finding that the frequency of price changes differs in a systematic way across sectors.…”

Section: Sectoral Heterogeneity Declining Hazard Rates and Calvo-mixmentioning

confidence: 95%