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Nakamura, Emi, and
Jón Steinsson. 2012. "Lost in Transit: Product Replacement Bias and Pricing to Market."
,
102(7): 3277-3316.
Show Article Details
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)
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Online Appendix
Authors:
Nakamura, Emi (Columbia U)
Steinsson, Jón (Columbia U)
JEL Classifications:
F14: Empirical Studies of Trade
F31: Foreign Exchange
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