Abstract
We establish five facts about prices in the U.S. economy: 1) For consumer prices, the median frequency of non-sale price change is roughly half of what it is including sales (9-12% per month versus 19-20% per month for identical items; 11-13% per month versus 21-22% per month including product substitutions). The median frequency of price change for finished goods producer prices is comparable to that of consumer prices excluding sales. 2) One-third of non-sale price changes are price decreases. 3) The frequency of price increases covaries strongly with 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 then declining. 5) We find no evidence of upward sloping hazard functions of price changes for individual products. 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.
The final version of this article can be found at http://www.mitpressjournals.org/loi/qjec