Price, sales, and the business cycle: Microeconomic evidence
Anahí Rodríguez-Martínez and
Latin American Journal of Central Banking (previously Monetaria), 2022, vol. 3, issue 1
This paper uses a rich weekly price database from the largest supermarket in Uruguay to analyze the relationship among prices, micro-level sales, and business cycle conditions. On average, 7% of products were on sale each month, and we show a positive and statistically significant but small relationship between sales and unemployment at the aggregate level, controlling for product and time effects. For each product category, there is a high and positive statistically significant association for these variables. Also, for some categories like food products, alcoholic drinks, beverages, and fruits and vegetables, we found a large, negative, and statistically significant relationship between the probability of being on sale and employment. The mechanism we tested is the following: As the economy worsens and unemployment rises (and/or employment falls), the supermarket uses sales to adjust prices while keeping reference prices fixed. Our results indicate that sales do not alleviate much of the price rigidity in economic recessions.
Keywords: Price rigidity; Sales; Unemployment; Time series principal component analysis (search for similar items in EconPapers)
JEL-codes: C38 E24 E31 E32 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:lajcba:v:3:y:2022:i:1:s2666143822000035
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