The Department of Economics Recruiting Seminars presents

"Price Dispersion and Inflation: New Facts and Theoretical Implications"
with Viacheslav Sheremirov, UC Berkeley. Ph.D. May 2014

January 17, 2014
11:00 a.m.-12:30 p.m.
Social Science Plaza B, Room 3218

In macroeconomic models, the level of price dispersion, which is typically approximated using its relationship with inflation, is a central determinant of welfare, the cost of business cycles, the optimal rate of inflation, and the trade-off between inflation and output stability. While the comovement of price dispersion and inflation implied by standard models is positive, Sheremirov finds that it is actually negative in the data. This talk will show that sales play a pivotal role: i) if sales are removed from the data, the comovement of price dispersion and inflation turns positive; ii) models in which price dispersion is due to price rigidity cannot quantitatively match the comovement even for regular prices; iii) the Calvo model with sales can quantitatively match both the negative comovement found in the data and the positive comovement for regular prices. Finally, Sheremirov will show that models that fail to match the degree of comovement in the data can significantly mismeasure welfare and its determinants.

For further information, please contact Jennifer dos Santos, dayj@uci.edu or 949-824-5788.