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The Cyclicality of Sales, Regular and Effective Prices: Comment

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

No 2015-52, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (US)

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- to low-price stores. We show that these authors' measures of inflation with and without store switching suffer from several methodological deficiencies, including an excessive truncation of price adjustments and the lack of a treatment for missing observations. When we address these deficiencies, the authors' key regression results no longer suggest that greater store switching during downturns is a statistically or economically significant phenomenon.

Keywords: Outlet substitution bias; effective prices; inflation measurement (search for similar items in EconPapers)
JEL-codes: D12 E31 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2015-07-09
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http://dx.doi.org/10.17016/FEDS.2015.052 http://dx.doi.org/10.17016/FEDS.2015.052 (application/pdf)

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