DP10726 The Cyclicality of Sales, Regular and Effective Prices: Comment

Author(s): Etienne Gagnon, J David López-Salido, Jason Sockin
Publication Date: July 2015
Keyword(s): effective prices, inflation measurement, Outlet substitution bias
JEL(s): D12, E31, E32
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10726

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 inflation with and without store switching suffer from several methodological deficiencies, including an excessive truncation of price adjustments and the lack of a treatment for missing observations. When we address these deficiencies, the authors' key regression results no longer suggest that greater store switching during downturns is a statistically or economically significant phenomenon.