Sales and Monetary Policy

Kevin Sheedy and Bernardo Guimaraes

No 365, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: A striking fact about prices is the prevalence of "sales": large temporary price cuts followed by prices returning exactly to their former levels. This paper builds a macroeconomic model with a rationale for sales based on firms facing consumers with different price sensitivities. Even if firms can adjust 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 seen in individual prices due to sales does not translate into flexibility of the aggregate price level.

Date: 2009
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Related works:
Journal Article: Sales and Monetary Policy (2011)
Working Paper: Sales and Monetary Policy (2008)
Working Paper: Sales and Monetary Policy (2008)
Working Paper: Sales and monetary policy (2008)
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