Sales and Monetary Policy

Bernardo Guimaraes and Kevin Sheedy

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: A striking fact about prices is the prevalence of ``sales': large temporary price cuts followed by a return exactly to the former price. This paper builds a macroeconomic model with a rationale for sales based on firms facing consumers with different price sensitivities. Even if firms can vary sales without cost, monetary policy has large real effects owing to sales being strategic substitutes: a firm's incentive to have a sale is decreasing in the number of other firms having sales. Thus the flexibility of prices at the micro level due to sales does not translate into flexibility at the macro level.

Keywords: sales; monetary policy; nominal rigidities (search for similar items in EconPapers)
JEL-codes: E3 E5 (search for similar items in EconPapers)
Date: 2008-08
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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https://cep.lse.ac.uk/pubs/download/dp0887.pdf (application/pdf)

Related works:
Journal Article: Sales and Monetary Policy (2011)
Working Paper: Sales and Monetary Policy (2009)
Working Paper: Sales and Monetary Policy (2008)
Working Paper: Sales and monetary policy (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp0887

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