Border Prices and Retail Prices

Berger, David; Faust, Jon; Rogers, John H.; Steverson, Kai

doi:10.17016/ifdp.2009.972

Cited by 20 publications

(31 citation statements)

References 9 publications

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“…The total number of product-months in our sample for which IPP attempts to record a price is roughly 1.6 million or about 150,000 per year. This dataset has previously been used by Clausing (2001), Gopinath and Rigobon (2008), Gopinath, Itskhoki, and Rigobon (2010), Gopinath and Itskhoki (2010a,b), Berger et al (2009) andNeiman (2010). Below, we provide a brief description of how these data are collected.…”

Section: Data Descriptionmentioning

confidence: 99%

“…Rogers (2006) argues that there is a negative relationship across industries between the frequency of product substitutions and exchange rate pass-through. Berger et al (2009) study the relationship across products between product substitutions and distribution wedges. Neiman (2010) andClausing (2001) provide additional evidence on the nature and reasons for price rigidity in the trade price data.…”

Section: Introductionmentioning

confidence: 99%

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Lost in Transit: Product Replacement Bias and Pricing to Market

Nakamura

Steinsson

2009

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The microdata underlying U.S. import and export price indexes exhibit frequent product turnover and highly rigid prices. As a consequence, 40% of products are replaced before a single price change is observed and 70% are replaced after two price changes or less. An aggregate price index that focuses on price changes for identical items over time may, therefore, miss an important component of price adjustment occuring at the time of product replacements. We provide a model of this "product replacement bias" and quantity its importance using U.S. microdata on improt and export prices. We show that, accounting for product replacement bias, long-run exchange rate "pass-through" into U.S. import and export price indexes is almost twice as high as conventional estimates suggest, and changes in the terms of trade are roughly 75% more volatile. Our adjustment makes pass-through statistics easier to account for with existing general equilibrium models. (including the U.S. import and export price indexes) are close approximations of a "matchedmodel index," in which all price changes used to construct the index are for identical items and product replacements are "linked-into" the index; meaning that the price comparison between the first observation of the new product and the last observation of the old product is dropped when changes in the index are calculated. 2 A matched model index will remain constant throughout in our example since prices only change at the time of product replacements and price comparisons between old and new products are dropped when the price index is constructed. Estimates of exchange rate pass-through using this price index will yield zero pass-through irrespective of what the true degree of pass-through is. 3While this is obviously an extreme example, it captures important features of the actual data underlying the U.S. import and export price indexes. Price rigidity and frequent product turnover imply that about 40% of expenditure weighted price series in these data have no price changes and roughly 70% have two price changes or less. 4 Even products that do have price changes while they are in the index, typically exit the index after a prolonged spell of price rigidity. If the prices of new products entering the index have already adjusted to exchange rate movements over this interval (as in our simple example above), the response of these prices to movements in exchange rates over this interval will be "lost in transit" (i.e., neither picked up by an observed price change of the exiting nor entering products). In this case, the price index will never fully reflect the true comovement of prices and exchange rates, even in the long run.We develop a model of this "product replacement bias" and show how it depends on observable features of price data. We estimate our model using BLS micro-data on import and export prices.Our "corrected" measure implies that pass-through of changes in the trade-weighted U.S. exchange rate into U.S. import prices for the period 1982-2007 was 0.64-almost twice as...

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Section: Data Descriptionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Lost in Transit: Product Replacement Bias and Pricing to Market

Nakamura

Steinsson

2009

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“…1 They also shed light on a potential contributor to the remarkable stability of U.S. nonenergy in ‡ation during and after the Great Recession despite large increases in resource slack. 2 Our paper shows that CGH's conclusions are unwarranted because their measures of posted and e¤ective price in ‡ation su¤er from several methodological de…ciencies that, on net, bias the inference toward …nding a cyclical role for store switching. One key de…ciency is CGH's overly severe truncation of price movements prior to calculating in ‡ation, a procedure presumably employed to control for outliers, but that, ultimately, dampens cyclical movements in posted price in ‡ation more than in e¤ective price in ‡ation.…”

Section: Introductionmentioning

confidence: 90%

“…For recent reviews of this related bias, see Houseman et al (2011) and Nakamura et al (2014). 2 See Robert E. Hall's 2011 presidential address to the American Economic Association, in which he documents this stability and invites macroeconomists to reconsider the long-held view that producers …nd it desirable to expand output by cutting prices in times of extreme slack. regular price movements meet that threshold, so truncation greatly reduces the amplitude of movements in their posted price in ‡ation series.…”

Section: Introductionmentioning

confidence: 99%

The Cyclicality of Sales, Regular and Effective Prices: Comment

Gagnon¹,

López‐Salido²,

Sockin³

2015

SSRN Journal

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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 in ‡ation with and without store switching su¤er from several methodological de…ciencies, including an excessive truncation of price adjustments and the lack of a treatment for missing observations. When we address these de…ciencies, the authors' key regression results no longer suggest that greater store switching during downturns is a statistically or economically signi…cant phenomenon.JEL Codes: D12, E31, E32.

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“…For consumer prices, the literature highlights costs added in the distribution and retail sector. For example, both Burstein, Neves, and Rebelo () and Berger, Faust, Rogers, and Steverson () find the distribution wedge (and distribution costs) to be significant (the latter paper finding the distribution wedge to be around 50 to 70%). Goldberg and Campa () also find that distribution margins can dampen border price pass‐through into consumption prices.…”

Section: Introductionmentioning

confidence: 99%

Market power in distribution and pass‐through for consumers and producers

François

Manchin

2018

Rev International Economics

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We examine the differential pass‐through of import prices into consumer and producer prices. We develop a framework with distribution costs and distribution market power. We then examine pass‐through from import prices to consumer and producer prices in the euro area using the U.S. import price as instrument. We find that pass‐through rates to producer prices are more sensitive to changes in distribution margins than pass‐through to consumer prices. Furthermore, only a portion of import price changes translate into domestic price changes limiting potential consumer benefits from tariff liberalization, with market power in distribution services being one important factor reducing pass‐through.

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Border Prices and Retail Prices

Cited by 20 publications

References 9 publications

Lost in Transit: Product Replacement Bias and Pricing to Market

Lost in Transit: Product Replacement Bias and Pricing to Market

The Cyclicality of Sales, Regular and Effective Prices: Comment

Market power in distribution and pass‐through for consumers and producers

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