Price, sales, and the business cycle: a time series principal component analysis

Fernando Borraz, Giacomo Livan, Anahí Rodríguez-Martínez and Pablo Picardo
Additional contact information
Giacomo Livan: University College London
Anahí Rodríguez-Martínez: Centro de Estudios Monetarios Latinoamericano
Pablo Picardo: Banco Central del Uruguay

No 2020002, Documentos de trabajo from Banco Central del Uruguay

Abstract: The main contribution of this work consist on studying sales behavior and their relationship with local market conditions like labor market indicators through a time series principal component analysis. We study the correlation structure of a large database on prices and found that all product sectors share a common correlation structure and the highest correlation and significance is achieved between employment variation and the first principal component, mostly in the second week of the following month. Sales or promotions, are a channel for price flexibility because firms can use them to change effective prices keeping sticky reference prices. We use a rich database of retail prices from Uruguay to characterize prices' flexibility, the behavior of sales, and their relationship with local market conditions like labor market indicators. Finally, we find a positive and significant relationship between sales and unemployment and perform a time series principal component analysis to study these relationships.

Keywords: price rigidity; sales; unemployment; principal component analysis (search for similar items in EconPapers)
JEL-codes: C38 E24 E31 E32 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2020
New Economics Papers: this item is included in nep-lam and nep-mac
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Related works:
Working Paper: Price, sales, and the business cycle: a time series principal component analysis (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bku:doctra:2020002

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