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Sales and monetary policy

Guimaraes, Bernardo and Sheedy, Kevin D. (2011) Sales and monetary policy. American Economic Review, 101 (2). pp. 844-876. ISSN 0002-8282

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Abstract

A striking fact about pricing is the prevalence of "sales": large temporary price cuts followed by prices returning to exactly their former levels. This paper builds a macroeconomic model with a rationale for sales based on firms facing customers with different price sensitivities. Even if firms can adjust sales without cost, monetary policy has large real effects owing to sales being strategic substitutes: a firm's incentive to have a sale is decreasing in the number of other firms having sales. Thus the flexibility seen in individual prices due to sales does not translate into flexibility of the aggregate price level.

Item Type: Article
Official URL: http://www.aeaweb.org/aer/index.php
Additional Information: © 2011 AEA
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Departments > Economics
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 19 May 2011 15:15
URL: http://eprints.lse.ac.uk/36204/

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