We establish five facts about prices in the U.S. economy: 1) The median implied duration of consumer prices when sales are excluded at the product level is between 8 and 11 months. The median implied duration of finished goods producer prices is 8.7 months. 2) One-third of regular price changes are price decreases. 3) The frequency of price increases responds strongly to inflation while the frequency of price decreases and the size of price increases and price decreases do not. 4) The frequency of price change is highly seasonal: It is highest in the 1st quarter and lowest in the 4th quarter. 5) The hazard function of price changes for individual consumer and producer goods is downward sloping for the first few months and then flat (except for a large spike at 12 months in consumer services and all producer prices). These facts are based on CPI microdata and a new comprehensive data set of microdata on producer prices that we construct from raw production files underlying the PPI. We show that the 1st, 2nd and 3rd facts are consistent with a benchmark menu-cost model, while the 4th and 5th facts are not.

This paper reviews methods for the estimation of dynamic discrete choice structural models and discusses related econometric issues. We consider single agent models, competitive equilibrium models and dynamic games. The methods are illustrated with descriptions of empirical studies which have applied these techniques to problems in different areas of economics. Programming codes for the estimation methods are available in a companion web page.

Some key features of the behavior of inflation in the United States appear to have changed in the past 20 years, with potentially important implications for forecasters and policymakers. A number of recent studies have provided strong evidence of a decline in the quarter-to-quarter or year-to-year variability of inflation. There is also evidence, albeit less conclusive, of a reduction in inflation persistence, which is a measure of how long it takes inflation to return to baseline after an unexpected change. Such shifts in the behavior or dynamics of inflation would necessitate changes in the economic relationships used by policymakers and economists to assess current conditions, forecast key economic indicators, and determine the implications of policy changes for future economic activity. Because inflation is ultimately a monetary phenomenon, the shift in dynamics might be due to a systematic change in the conduct of monetary policy since the late 1970s or early 1980s. Examinations of

This paper analyzes the dynamics of prices in two online secondary markets for Major League Baseball tickets. Controlling for ticket quality, prices tend to decline significantly as a game approaches. The paper describes and tests alternative theoretical explanations for why this happens in equilibrium, considering the problems of both buyers and sellers. It shows that sellers cut prices (either fixed prices or reserve prices in auctions) because of declining opportunity costs of holding onto tickets as their future selling opportunities disappear. Even though prices can be expected to fall, the vast majority of observed early purchasing can be rationalized by plausible values of risk aversion and search costs given the vertically differentiated nature of tickets and uncertainty about the future availability of particular types of tickets.

We propose a new explanation for price rigidity. If consumers form habits in individual goods, then firms face a time-inconsistency problem. The consumers ’ habits imply that low prices in the future help attract customers in the present. Firms would therefore like to promise low prices in the future. But when the future arrives they have an incentive to exploit consumers ’ habits and price gouge. In this model, unlike the standard no-habit model, price rigidity is an equilibrium outcome. Equilibrium price rigidity can be sustained because rigid prices help firms overcome the time-inconsistency problem. If consumers have incomplete information about firms ’ desired prices, the firm-preferred equilibrium has the firm price at or below a “price cap”. Our model therefore provides an explanation for the simultaneous existence of a rigid regular price and frequent sales, a pattern that is difficult to reconcile with existing models of price rigidity. Our model also explains why firms fear adverse reactions to price changes, why sales prices are more flexible than regular prices, why firms make explicit promises not to change prices and why price are more rigid to repeat customers than to one-time customers.

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