Lost in Transit: Product Replacement Bias and Pricing to Market

Emi Nakamura and Jon Steinsson

American Economic Review, 2012, vol. 102, issue 7, 3277-3316

Abstract: In the microdata underlying US trade price indexes, 40 percent of products are replaced before a single price change is observed and 70 percent are replaced after two price changes or fewer. A price index that focuses on price changes for identical items may, therefore, miss an important component of price adjustment occurring at the time of product replacements. We provide a model of this "product replacement bias" and quantify its importance using US data. Accounting for product replacement bias, long-run exchange rate "pass-through" is substantially higher than conventional estimates suggest, and the terms of trade are substantially more volatile. (JEL F14, F31)

JEL-codes: F14 F31 (search for similar items in EconPapers)
Date: 2012
Note: DOI: 10.1257/aer.102.7.3277
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Citations: View citations in EconPapers (86)

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Working Paper: Lost in Transit: Product Replacement Bias and Pricing to Market (2009)
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