Sales and monetary policy

Bernardo Guimaraes and Kevin Sheedy

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: A striking fact about prices is the prevalence of ``sales'': large temporary price cuts followed by a return exactly to the former price. This paper builds a macroeconomic model with a rationale for sales based on firms facing consumers with different price sensitivities. Even if firms can vary 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 of prices at the micro level due to sales does not translate into flexibility at the macro level.

JEL-codes: E3 E5 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2008-08
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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http://eprints.lse.ac.uk/25492/ Open access version. (application/pdf)

Related works:
Journal Article: Sales and Monetary Policy (2011)
Working Paper: Sales and Monetary Policy (2009)
Working Paper: Sales and Monetary Policy (2008)
Working Paper: Sales and Monetary Policy (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:25492

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