Sales and Monetary Policy

Bernardo Guimaraes and Kevin Sheedy

American Economic Review, 2011, vol. 101, issue 2, 844-76

Abstract: A striking fact about pricing is the prevalence of "sales": large temporary price cuts followed by prices returning to exactly their former levels. This paper builds a macroeconomic model with a rationale for sales based on firms facing customers 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. (JEL E13, E31, E52, L11, L25, L81, M31)

Date: 2011
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Related works:
Working Paper: Sales and Monetary Policy (2009)
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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