Kiel Working Papers, Kiel Institute for World Economics
No 1356:
Asymmetric Price Adjustment in the Small
Daniel Levy, Haipeng (Allan) Chen, Sourav Ray and Mark Bergen
Abstract: Analyzing a large weekly retail transaction price dataset,
we uncover a surprising regularity— small price increases occur more
frequently than small price decreases for price changes of up to about 10
cents, while there is no such asymmetry for larger price changes. The
asymmetry holds for the entire sample and for individual categories. We
find that while inflation can explain some of the asymmetry, inflation is
not the whole story as the asymmetry holds even after excluding
inflationary periods from the data, and even for products whose price had
not increased over the eight-year period. The findings hold for different
measures of inflation and also after allowing for lagged price adjustments.
We offer a consumer-based explanation for these findings.
Keywords: Asymmetric Price Adjustment, Price Rigidity; (follow links to similar papers)
JEL-Codes: E31,; D11,; D21,; D80,; L11,; M31; (follow links to similar papers)
43 pages, June 2007
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