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- Title
Lost in Transit: Product Replacement Bias and Pricing to Market.
- Authors
Nakamura, Emi; Steinsson, Jón
- Abstract
In the microdata underlying US trade price indexes, 40 percent of products are replaced before a single price change is observed and 70 percent are replaced after two price changes or fewer. A price index that focuses on price changes for identical items may, therefore, miss an important component of price adjustment occurring at the time of product replacements. We provide a model of this 'product replacement bias' and quantify its importance using US data. Accounting for product replacement bias, long-run exchange rate 'pass-through' is substantially higher than conventional estimates suggest, and the terms of trade are substantially more volatile. (JEL F14, F31)
- Subjects
UNITED States; PRICE indexes; PRICING; FOREIGN exchange rates; MARKET volatility; U.S. dollar; COMMERCE
- Publication
American Economic Review, 2012, Vol 102, Issue 7, p3277
- ISSN
0002-8282
- Publication type
Article
- DOI
10.1257/aer.102.7.3277