Staggering and Synchronization in Price-Setting: Evidence from Multipro-duct Firms

Most of the theoretical literature on price-setting behavior deals with the special case in which only a single price is changed. At the retail-store level, at least, where dozens of products are sold by a single price-setter, price-setting policies are not formulated for individual products. This feature of economic behavior raises a host of questions whose answers carry interesting implications. Are price setters staggered in the timing of price changes? Are price changes of different products synchronized within the store? If so, is this a result of aggregate shocks or of the presence of a store- specific component in the cost of adjusting prices? Can observed small changes in prices be rationalized by a menu cost model? We exploit the multiproduct dimension of the dataset on prices used in Lach and Tsiddon (1992a) to explore several of these and other issues. To the best of our knowledge this is the first empirical work on this subject.

Earnings inequality and the business cycle

Economists have long viewed recessions as contributing to increasing inequality. However, this conclusion is largely based on data from a period in which inequality was increasing over time. This paper examines the connection between long-run trends and cyclical variation in earnings inequality. We develop a model in which cyclical and trend inequality are related, and find that in our model, recessions tend to amplify long-run trends, i.e. they involve more rapidly increasing inequality more when long-run inequality is increasing, and more rapidly decreasing inequality when long-run inequality is decreasing. In support of this prediction, we present evidence that during the first half of the 20th Century when earnings inequality was generally declining, earnings disparities indeed appeared to fall more rapidly in downturns, at least among workers at the top of the earnings distribution.Business cycles ; Wages

Earnings Inequality and the Business Cycle

Economists have long viewed recessions as contributing to increasing inequality. However, this conclusion is largely based on data from a period in which inequality was increasing over time. This paper examines the connection between long-run trends and cyclical variation in earnings inequality. We develop a model in which cyclical and trend inequality are related, and find that in our model, recessions tend to amplify long-run trends, i.e. they involve more rapidly increasing inequality more when long-run inequality is increasing, and more rapidly decreasing inequality when long-run inequality is decreasing. In support of this prediction, we present evidence that during the first half of the 20th Century when earnings inequality was generally declining, earnings disparities indeed appeared to fall more rapidly in downturns, at least among workers at the top of the earnings distribution.

Leapfrogging: A Theory of Cycles in National Technological Leadership

Much recent work has suggested that endogenous technological change tends to reinforce the position of the leading nations. Yet from time to time this leadership role shifts. We suggest a mechanism that explains this pattern of -leapfrogging- as a response to occasional major changes in technology. When such a change occurs, leading nations may have no incentive to adopt the new ideas; given their extensive experience with older technologies, the new ideas do not initially seem to be an improvement. Lagging nations, however, have less experience; the new techniques offer them an opportunity to use their lower wages, to break into the market. If the new techniques eventually prove to be more productive than the old, there is a reversal of leadership.

On the Stubbornness of Sticky Prices.

This paper presents a simple "menu cost" example in which there is a clear distinction between price stickiness and downward rigidity of prices. While price stickiness may or may not exist in "menu cost" models, downward rigidity shows up whenever there is a reduction of the expected rate of inflation. This reduction changes the optimal target and threshold for each firm. For some, it also implies an immediate increase of their own price. This upward jump of prices in case of a disinflationary attempt is interpreted as downward rigidity since there are no symmetric forces when expected inflation increases. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

The (Mis)Behaviour of the Aggregate Price Level.

This paper investigates the response of the price level to random monetary shocks through a model of the fixed cost of changing a nominal price. It shows that, in an inflationary environment, an expansionary monetary shock is accommodated faster than a contractionary monetary shock. Furthermore, when the average rate of monetary expansion increases, the lag in response to a positive shock decreases. The study also proves that the relationship between the expected rate of inflation and the variance of real prices is positive only above a critical level of expected inflation. Copyright 1993 by The Review of Economic Studies Limited.

Small price changes and menu costs

We find that while some individual price changes are indeed 'small', the average price change of different products within a store in any given month is not. Moreover, the smaller the price change of an individual product, the larger the average price change of the remaining products sold by the store. We argue that these findings are consistent with extensions of menu cost models of price-setting behavior to multiproduct firms when these firms have high average costs and low marginal costs of changing prices. Copyright © 2007 John Wiley & Sons, Ltd.

Technological Progress, Mobility and Economic Growth

This paper analyses the relationship between technological progress, the transmission of income inequality across generations, and economic growth. The analysis demonstrates that the interplay between technological progress and two components that determine individual earnings - parental human capital and individual ability - governs the evolutionary Patterns of intergenerational earnings mobility, the pace of technological progress, and economic growth. In periods of major technological inventions the ability effect is the dominating factor. The decline in the relative importance of initial parental conditions (i.e., the driving force behind the persistence of inequality) enhances mobility and generates a larger concentration of individuals with high levels of ability and human capital in technologically advanced sectors, stimulating further technological progress and economic growth. In periods of technological innovations, however, once existing technologies become more accessible, the parental specific human capital effect is the dominating factor, mobility is diminished and inequality becomes more persistent. The reduction in the concentration of human capital in technologically advanced sectors diminishes the likelihood of major technological breakthroughs and slows down future economic growth. User friendliness, therefore, becomes unfriendly to future economic growth