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American Economic Review: Vol. 102 No. 7 (December 2012)
AER Volume. 102, Issue 7 | 
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AER Forthcoming Articles
Lost in Transit: Product Replacement Bias and Pricing to Market
Article Citation
Nakamura, Emi, and
Jón Steinsson. 2012. "Lost in Transit: Product Replacement Bias and Pricing to Market."
American Economic Review,
102(7): 3277-3316.
DOI: 10.1257/aer.102.7.3277
DOI: 10.1257/aer.102.7.3277
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)
Article Full-Text Access
Full-text Article
Additional Materials
Download Data Set (267.04 KB) | Online Appendix (202.04 KB)
Authors
Nakamura, Emi (Columbia U)
Steinsson, Jón (Columbia U)
Steinsson, Jón (Columbia U)
JEL Classifications
F14: Empirical Studies of Trade
F31: Foreign Exchange
F31: Foreign Exchange
