Working Paper

The Cyclicality of Sales, Regular and Effective Prices: 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 reallocation of consumer spending from high- to low-price stores. We show that these authors' measures of inflation with and without store switching suffer from several methodological deficiencies, including an excessive truncation of price adjustments and the lack of a treatment for missing observations. When we address these deficiencies, the authors' key regression results no longer suggest that greater store switching during downturns is a statistically or economically significant phenomenon.

Keywords: Outlet substitution bias; effective prices; inflation measurement;

JEL Classification: D12; E31; E32;

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File(s): File format is application/pdf http://www.federalreserve.gov/econresdata/feds/2015/files/2015052pap.pdf
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File(s): File format is application/pdf http://dx.doi.org/10.17016/FEDS.2015.052
Description: http://dx.doi.org/10.17016/FEDS.2015.052

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2015-07-09

Number: 2015-52