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The Cyclicality of Sales, Regular, and Effective Prices: Business Cycle and Policy Implications: Comment

Etienne Gagnon (), David López-Salido and Jason Sockin ()

American Economic Review, 2017, vol. 107, issue 10, 3229-42

Abstract: Coibion, Gorodnichenko, and Hong (2015) argue that the CPI underestimates the deceleration in consumer prices during economic downturns because the index fails to account for the reallocation of consumer spending from high-price to low-price stores. We show that their conclusion hinges on some nonstandard methodological choices, including an aggressive censoring of price adjustments and a treatment for missing observations that can leave out some of the price variation. Under our preferred methodology, the regression results no longer indicate that greater store switching during downturns is a statistically or economically significant phenomenon.

JEL-codes: D12 E31 E32 L25 L81 M31 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/aer.20150891
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Handle: RePEc:aea:aecrev:v:107:y:2017:i:10:p:3229-42