Inflation and Price Adjustment: An Analysis of Microdata

use large datasets on prices by products and stores from recent inflationary periods in Israel to compare simple menu cost models with simple uncertain and sequential trade (UST) models. The main empirical findings are (a) price erosion due to inflation explains only a tiny fraction of the variation in nonzero nominal price changes, (b) stores whose last nominal price change was relatively low are likely to choose a nominal price change that is relatively high, (c) stores that reduce their nominal price charge a lower price relative to stores that increase their nominal price, and (d) relative price variability is not related to inflation. (Copyright: Elsevier)