The roles of price points and menu costs in price rigidity

Edward Knotek

Journal of Monetary Economics, 2024, vol. 145, issue C

Abstract: Macroeconomic models often generate nominal price rigidity via menu costs. In scanner databases, (1) price points, embodied in nine-ending prices, account for two-thirds of prices; (2) at the conclusion of sales, post-sale prices return to their pre-sale levels more than three-fourths of the time; and (3) such memory around sales is stronger if the pre-sale price was a price point. Extending a canonical menu cost model to allow for price points, I estimate an incentive to set nine-ending prices two orders of magnitude larger than the menu costs. The choice of a mechanism for price rigidity matters for aggregate dynamics.

Keywords: Price rigidity; Menu costs; Price points; Nine-ending prices (search for similar items in EconPapers)
JEL-codes: C15 D40 E31 L11 M31 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: The Roles of Price Points and Menu Costs in Price Rigidity (2019)
Working Paper: The Roles of Price Points and Menu Costs in Price Rigidity (2016)
Working Paper: The roles of price points and menu costs in price rigidity (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:145:y:2024:i:c:s0304393224000126

DOI: 10.1016/j.jmoneco.2024.103559

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