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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
The Cyclicality of Sales, Regular and Effective Prices: Comment
Etienne Gagnon
J. David Lopez-Salido
Jason A. Sockin
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.


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Etienne Gagnon & J. David Lopez-Salido & Jason A. Sockin, The Cyclicality of Sales, Regular and Effective Prices: Comment, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2015-52, 09 Jul 2015.
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Keywords: Outlet substitution bias; effective prices; inflation measurement
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