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  • Working Paper

The Distribution of the Size of Price Changes

By: Alberto Cavallo and Roberto Rigobon
  • Format:Print
  • | Language:English
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Abstract

Different theories of price stickiness have distinct implications on the number of modes in the distribution of price changes. We formally test for the number of modes in the price change distribution of 36 supermarkets, spanning 22 countries and 5 continents. We present results for three modality tests: the two best-known tests in the statistical literature, Hartigan’s Dip and Silverman’s Bandwidth, and a test designed in this paper, called the Proportional Mass test (PM). Three main results are uncovered. First, when the traditional tests are used, unimodality is rejected in about 90 percent of the retailers. When we used the PM test, which reduces the impact of smaller modes in the distribution and can be applied to test for modality around zero percent, we still reject unimodality in two thirds of the supermarkets. Second, category-level heterogeneity can account for about half of the PM test’s rejections of unimodality. Finally, a simulation of the model in Alvarez, Lippi, and Paciello (2010) shows that the data is consistent a combination of both time and state-dependent pricing behaviors.

Keywords

Online Prices; Macroeconomics; Price; Change

Citation

Cavallo, Alberto, and Roberto Rigobon. "The Distribution of the Size of Price Changes." NBER Working Paper Series, No. 16760, September 2012.
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About The Author

Alberto F. Cavallo

Business, Government and the International Economy
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More from the Authors
  • Tariff Passthrough at the Border and at the Store: Evidence from U.S. Trade Policy By: Alberto Cavallo, Gita Gopinath, Brent Neiman and Jenny Tang
  • Targeted Price Controls on Supermarket Products By: Alberto Cavallo and Diego Aparicio
  • The Coronavirus (COVID-19) Pandemic and the Global Economy (B) By: Alberto Cavallo and Christian Godwin
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