Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322215 
Year of Publication: 
2025
Series/Report no.: 
Working Paper No. 2025-03
Publisher: 
Bar-Ilan University, Department of Economics, Ramat-Gan
Abstract: 
Studies of micro-level price datasets find more frequent small price increases than decreases, which can be explained by consumer inattention because time-constrained shoppers might ignore small price changes. Recent empirical studies of the link between shopping behavior and price attention over the business cycle find that consumers are more (less) attentive to prices during economic downturns (booms). These two sets of findings have a testable implication: the asymmetry in small price changesshould vary over the business cycle-it should diminish during recessions and strengthen during expansions. We test this prediction using a large US store-level dataset with more than 98 million weekly price observations for the years 1989-1997, which includes an 8-month recession period, as defined by the NBER. We compare price adjustments between periods of recession (high unemployment) and expansion (low unemployment). Focusing on small price changes, we find, consistent with our hypothesis, that there is a greater asymmetry in small price changes during periods of low unemployment compared to the periods of high unemployment, implying that firms' price-setting behavior varies over the business cycle
Subjects: 
Asymmetric Price Adjustment
Small Price Changes
Consumer Inattention
Price Rigidity
Sticky Prices
Business Cycles
Unemployment
Recessions
Expansions
JEL: 
E31
E32
D11
D21
D80
D91
L11
L16
M31
Document Type: 
Working Paper

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