Price Setting on the Two Sides of the Atlantic: Evidence from Supermarket-Scanner Data
Abstract
We compare supermarket price setting in the US and the euro area and assess its impact on food inflation. We introduce a novel scanner dataset of Germany, the Netherlands, France, and Italy (EA4) and contrast it with an equivalent dataset from the US. We find that both higher frequency and stronger state dependence of price changes contribute to higher flexibility of supermarket inflation in the US relative to the euro area. We argue that the driving force behind both factors is higher cross-sectional volatility in the US. Larger product-level fluctuations both force retailers to adjust prices more frequently and increase price misalignments, which increase the selection of large price changes. Both facts are well represented by a mildly state-dependent price-setting model, and they jointly explain over a third of the difference in food-inflation volatility between the US and the euro area as well as around a third of the difference between the inflation responses to the COVID-19 shock in Germany and Italy. Show more
Publication status
publishedExternal links
Journal / series
CEPR Discussion PapersVolume
Pages / Article No.
Publisher
Centre for Economic Policy ResearchSubject
food inflation; Covid-19; State-dependent pricing; generalized hazard function; duration hazard function; US and euro-area comparisonOrganisational unit
02525 - KOF Konjunkturforschungsstelle / KOF Swiss Economic Institute
06331 - KOF FB Konjunkturumfragen / KOF Business Tendency Surveys
Related publications and datasets
Is previous version of: http://hdl.handle.net/20.500.11850/646480
Is original form of: http://hdl.handle.net/20.500.11850/646482
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