Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
The Cyclicality of Sales, Regular and Effective Prices: Comment
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.
Cite this item
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.
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
Keywords: Outlet substitution bias; effective prices; inflation measurement
This item with handle RePEc:fip:fedgfe:2015-52
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