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Menu Costs, Multi-Product Firms and Aggregate Fluctuations

Virgiliu Midrigan ()

Macroeconomics from EconWPA

Abstract: I employ a large set of scanner price data collected in retail stores and document that (i) although the average magnitude of price changes is large, a substantial number of price changes are small in absolute value; (ii) the distribution of non-zero price changes has fat tails; and (iii) stores tend to adjust prices of goods in narrow product categories simultaneously. I extend the standard menu costs model to a multi-product setting in which firms face economies of scale in the technology of adjusting prices. The model, because of its ability to replicate this additional set of micro-economic facts, can generate aggregate fluctuations much larger than those in standard menu costs economies.

Keywords: state-dependent pricing; multi-product firms (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2005-11-01
Note: Type of Document - pdf; pages: 59
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0511004

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