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  3. American Economic Review
  4. April 2011
  5. Sales and Monetary Policy

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Sales and Monetary Policy

  • Bernardo Guimaraes
  • Kevin D. Sheedy
American Economic Review
vol. 101, no. 2, April 2011
(pp. 844–76)
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Abstract

A striking fact about pricing is the prevalence of "sales": large temporary price cuts followed by prices returning to exactly their former levels. This paper builds a macroeconomic model with a rationale for sales based on firms facing customers with different price sensitivities. Even if firms can adjust sales without cost, monetary policy has large real effects owing to sales being strategic substitutes: a firm's incentive to have a sale is decreasing in the number of other firms having sales. Thus the flexibility seen in individual prices due to sales does not translate into flexibility of the aggregate price level. (JEL E13, E31, E52, L11, L25, L81, M31)

Citation

Guimaraes, Bernardo, and Kevin D. Sheedy. 2011. "Sales and Monetary Policy." American Economic Review 101 (2): 844–76. DOI: 10.1257/aer.101.2.844

Additional Materials

JEL Classification

  • E13 General Aggregative Models: Neoclassical
  • E31 Price Level; Inflation; Deflation
  • E52 Monetary Policy
  • L11 Production, Pricing, and Market Structure; Size Distribution of Firms
  • L25 Firm Performance: Size, Diversification, and Scope
  • L81 Retail and Wholesale Trade; e-Commerce
  • M31 Marketing