Price Flexibility in Channels of Distribution: Evidence from Scanner Data

In this study, we empirically examine the extent of price rigidity using a unique store-level time series data set - consisting of (i) actual retail transaction prices, (ii) actual wholesale transaction prices which represent both the retailers' costs and the prices received by manufacturers, and (iii) a measure of manufacturers' costs - for twelve goods in two widely used consumer product categories. We simultaneously examine the extent of price rigidity for each of the twelve products at both, final goods and intermediate goods levels. We study two notions of price rigidity employed in the existing literature: (i) the frequency of price changes, and (ii) the response of prices to exogenous cost changes. We find that retail prices exhibit remarkable flexibility in terms of both notions of price rigidity. i.e., they change frequently and they seem to respond quickly and fully to cost changes. Furthermore, we find that retail prices respond not just to their direct costs, but also to the upstream manufacturers' costs, which further reinforces the extent of the retail price flexibility. At the intermediate goods level of the market, in contrast, we find relatively more evidence of rigidity in the response of manufacturers prices to cost changes. This despite the fact that wholesale prices change frequently and therefore exhibit flexibility according to the first notion of price rigidity.Price Flexibility, Price Rigidity, Final Goods Market, Intermediate Goods Market, Stages of Processing, Structural VAR, Scanner Data, Transaction Price Data, Frequency of Price Changes, Price Response to Exogeneous Cost Changes, Retail Price, Wholesale Price, New Keynesian Macroeconomics, How Markets Clear, Time Series Analysis, Orange Juice, Orange Juice Frozen Concentrate, Futures Market

Bank capital regulation, the lending channel and business cycles

This paper develops a Dynamic Stochastic General Equilibrium (DSGE) model to study how the instability of the banking sector can amplify and propagate business cycles. The model builds on Bernanke, Gertler and Gilchrist (BGG) (1999), who consider credit demand friction due to agency cost, but it deviates from BGG in that financial intermediaries have to share aggregate risk with entrepreneurs, and therefore bear uncertainty in their loan portfolios. Unexpected aggregate shocks will drive loan default rate away from expected, and have an impact on both firm and bank's balance sheet via the financial contract. Low bank capital position can create strong credit supply contraction, and have a significant effect on business cycle dynamics. --Bank capital regulation,banking instability,financial friction,business cycle

Essays in Environmental and Energy Economics

This dissertation contributes developments in modeling and policy analysis in environmental and energy economics. All three chapters are useful to ongoing debates in climate change policy and the regulation of greenhouse gas emissions. My first chapter develops a model of consumer decision-making in an analysis of the electricity retail choice market in Texas. This project explores (1) the limitations of consumer decision-making in a setting with large choice sets and (2) the relationship between competition and product variety after deregulation. I find strong evidence of inattention and search costs as explanations for consumers\u27 widespread failure to choose cost-minimizing contracts. These findings suggest that policymakers could improve welfare with interventions that reduce search costs and inattention, such as removing the legal obstacles to concierge services or introducing a web-based tool to find consumers\u27 cost-minimizing contract based on their consumption history. My findings also suggest that these interventions could lead to higher adoption of time-varying rates, which could lead to more efficient allocation of grid resources and lower emissions levels. My other main finding is that consumers are constrained in the monopoly setting from expressing their heterogeneous preferences for contract variety. This insight may guide regulators in monopoly settings to consider increasing variety. Of course, the possible benefits of increased variety face a trade-off with the costs of search and inattention. My second chapter is co-authored with Robert Mendelsohn and Paula Pereda. We propose a model to estimate the economic damages from weather shocks and climate change. We contrast our model with the models used in previous literature, and we show that our model estimates substantially different effects than this earlier work, a finding the emphasizes the importance of model selection and careful consideration of the implicit assumptions. We demonstrate our method in the contexts of both agricultural profits and GDP, but this model could be easily transported to a variety of other settings and sectors in the climate change damages literature. My final chapter is co-authored with Kenneth Gillingham and James Stock. We compare several time series models to estimate the price elasticity of new vehicle sales, addressing the classic challenges of price and sales endogeneity and simultaneity in time series analysis with aggregate data. Correctly identifying the price elasticity of new vehicle sales is especially important for estimating the impacts of fuel economy standards because changing fuel economy stringency is assumed to cause a shock to new vehicle prices. The resulting effect on new vehicle sales has broad implications beyond the immediate impact on the vehicle industry. In particular, new vehicles generally have the best safety features and pollution controls, so reducing replacement of used vehicles has consequences for public safety and pollution levels. This project is also a novel application of a structural vector autoregression with instrumental variables (SVAR-IV), a relatively new methodology borrowed from the monetary policy literature. We compare the SVAR-IV with other time series approaches, some of which have been considered in policymaking for fuel economy standards

Decision Stages and Asymmetries in Regular Retail Price Pass-Through

We study the pass-through of wholesale price changes onto regular retail prices using an unusually detailed data set obtained from a major retailer. We model pass-through as a two-stage decision process that reflects both whether as well as how much to change the regular retail price. We show that pass-through is strongly asymmetric with respect to wholesale price increases versus decreases. Wholesale price increases are passed through to regular retail prices 70% of the time while wholesale price decreases are passed through only 9% of the time. Pass-through is also asymmetric with respect to the magnitude of the wholesale price change, with the magnitude affecting the response to wholesale price increases but not decreases. Finally, we show that covariates such as private label versus national brand, 99-cent price endings, and the time since the last wholesale price change have a much stronger impact on the first stage of the decision process (i.e., whether to change the regular retail price) than on the second stage (i.e., how much to change the regular retail price)

A Historical Evaluation of Financial Accelerator Effects in Japan's Economy

In this paper, we carry out a historical evaluation of the financial accelerator effects, which were mainly generated by the changes in asset prices, operating on Japan's economy since the 1980s. For this purpose, we estimate a Japanese financial accelerator model, which is a modified version of Bernanke, Gertler and Gilchrist [1999]'s model, and identify the historical exogenous shocks affecting the evolution of firms' net worth. As a result, we confirm that the estimated parameter on the corporate balance sheet channel is statistically significant. We also find that the identified net worth shocks, which change the amount of firms' debt holdings relative to their total values, produced a large and persistent impact on Japan's output and prices. This result strongly suggests that the negative financial accelerator effects were indispensable to explain the mechanism behind Japan's long stagnation during the 1990s and early 2000s, as well as indicating that the deflation of general prices since the late 1990s has been at least partly attributed to the same cause.

"Inflation persistence and price-setting behaviour in the euro area: a summary of the Inflation Persistence Network evidence." NBB Working Paper No. 95, October 2006

This paper provides a summary of current knowledge on inflation persistence and price stickiness in the euro area, based on research findings that have been produced in the context of the Inflation Persistence Network. The main findings are: i) Under the current monetary policy regime, the estimated degree of inflation persistence in the euro area is moderate; ii) Retail prices in the euro area are more sticky than in the US; iii) There is significant sectoral heterogeneity in the degree of price stickiness; iv) Price decreases are not uncommon. The paper also investigates some of the policy implications of these findings

Electricity reform experiences in Asia, Pacific Region, GATS and privatisation of the industry

This paper examines the package of reforms often applied to the electricity industry and discusses its relevance to Sri Lanka. It examines experience in other Asian countries with these reforms. It also looks at the status of GATS in the electricity sector

The European Economy: Current Situation and Economic Outlook

This chapter discusses the current economic situation and the future outlook for Europe stressing the cause and implications of a strong euro as well as the need for a common fiscal framework through an improvement of the Stability and Growth Pact.

Inflation persistence and price-setting behaviour in the euro area – a summary of the IPN evidence

This paper provides a summary of current knowledge on inflation persistence and price stickiness in the euro area, based on research findings that have been produced in the context of the Inflation Persistence Network. The main findings are - i) Under the current monetary policy regime, the estimated degree of inflation persistence in the euro area is moderate; ii) Retail prices in the euro area are more sticky than in the US; iii) There is significant sectoral heterogeneity in the degree of price stickiness; iv) Price decreases are not uncommon. The paper also investigates some of the policy implications of these findings. JEL Classification: E31, E42, E52.Price setting, inflation persistence, monetary policy, EMU.