Five facts about prices
Emi Nakamura and Jon Steinsson from
Harvard University present Five Facts About Prices: A Reevaluation of Menu Cost Models (PDF):
We establish five facts about prices in the U.S. economy:
1) The median duration of consumer prices when sales are excluded at the product level is 11months. The median duration of finished goods producer prices is 8.7 months.
2)Two-thirds of regular price changes are price increases.
3) The frequency of price increases responds strongly to inflation while the frequency of price decreases and the size of price increases and price decreases do not.
4) The frequency of price change is highly seasonal: It is highest in
the 1st quarter and lowest in the 4th quarter.
5) The hazard function of price changes for individual consumer and producer goods is downward sloping for the first few months and then flat (except for a large spike at 12 months in consumer services and all producer prices).
These facts are based on CPI microdata and a new comprehensive data set of microdata on producer prices that we construct from raw production files underlying the PPI. We show that the 1st, 2nd and 3rd facts are consistent with a benchmark menu-cost model, while the 4th and 5th facts are not.
Wednesday, October 18, 2006
From the ever useful New Economist: