òòò½Íø Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Lost in Transit: Product Replacement Bias and Pricing to Market
òòò½Íø Review
vol. 102,
no. 7, December 2012
(pp. 3277–3316)
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)Citation
Nakamura, Emi, and Jón Steinsson. 2012. "Lost in Transit: Product Replacement Bias and Pricing to Market." òòò½Íø Review 102 (7): 3277–3316. DOI: 10.1257/aer.102.7.3277Additional Materials
JEL Classification
- F14 Empirical Studies of Trade
- F31 Foreign Exchange