Alberto Cavallo

Bio: Alberto Cavallo is an academic researcher from Harvard University. The author has contributed to research in topics: Inflation & Exchange rate. The author has an hindex of 20, co-authored 60 publications receiving 1481 citations. Previous affiliations of Alberto Cavallo include International Monetary Fund & Massachusetts Institute of Technology.

The Billion Prices Project: Using Online Prices for Measurement and Research

Abstract: A large and growing share of retail prices all over the world are posted online on the websites of retailers. This is a massive and (until recently) untapped source of retail price information. Our objective with the Billion Prices Project, created at MIT in 2008, is to experiment with these new sources of information to improve the computation of traditional economic indicators, starting with the Consumer Price Index. We also seek to understand whether online prices have distinct dynamics, their advantages and disadvantages, and whether they can serve as reliable source of information for economic research. The word "billion" in Billion Prices Project was simply meant to express our desire to collect a massive amount of prices, though we in fact reached that number of observations in less than two years. By 2010, we were collecting 5 million prices every day from over 300 retailers in 50 countries. We describe the methodology used to compute online price indexes and show how they co-move with consumer price indexes in most countries. We also use our price data to study price stickiness, and to investigate the "law of one price" in international economics. Finally we describe how the Billion Prices Project data are publicly shared and discuss why data collection is an important endeavor that macro- and international economists should pursue more often.

Are Online and Offline Prices Similar? Evidence from Large Multi-channel Retailers

Abstract: Online prices are increasingly used for measurement and research applications, yet little is known about their relation to prices collected offline, where most retail transactions take pla...

Currency Unions, Product Introductions, and the Real Exchange Rate*

Abstract: We use a novel data set of online prices of identical goods sold by four large global retailers in dozens of countries to study good-level real exchange rates and their aggregated behavior. First, in contrast to the prior literature, we demonstrate that the law of one price holds very well within currency unions for tens of thousands of goods sold by each of the retailers, implying good-level real exchange rates often equal to 1. Prices of these same goods exhibit large deviations from the law of one price outside of currency unions, even when the nominal exchange rate is pegged. This clarifies that the common currency per se, and not simply the lack of nominal volatility, is important in reducing cross-country price dispersion. Second, we derive a new decomposition that shows that good-level real exchange rates in our data predominantly reflect differences in prices at the time products are first introduced, as opposed to the component emerging from heterogeneous passthrough or from nominal rigidities during the life of the good. Further, these international relative prices measured at the time of introduction move together with the nominal exchange rate. This stands in sharp contrast to pricing behavior in models where all price rigidity for any given good is due simply to costly price adjustment for that good.

Inflation Expectations, Learning, and Supermarket Prices: Evidence from Survey Experiments

Abstract: Information frictions play a central role in the formation of household inflation expectations, but there is no consensus about their origins. We address this question with novel evidence from survey experiments. We document two main findings. First, individuals in low inflation contexts have significantly weaker priors about the inflation rate. This finding suggests that rational inattention may be an important source of information frictions. Second, cognitive limitations also appear to be a source of information frictions: even when information about inflation statistics is available, individuals still place a significant weight on inaccurate sources of information, such as their memories of the price changes of the supermarket products they purchase. We discuss the implications of these findings for macroeconomic models and policymaking. (JEL D83, D84, E31, L11, L81, O11)

Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks

Abstract: This article examines whether firm-level idiosyncratic shocks propagate in production networks. We identify idiosyncratic shocks with the occurrence of natural disasters. We find that affected suppliers impose substantial output losses on their customers, especially when they produce specific inputs. These output losses translate into significant market value losses, and they spill over to other suppliers. Our point estimates are economically large, suggesting that input specificity is an important determinant of the propagation of idiosyncratic shocks in the economy. JEL Codes: L14, E23, E32.

Economics in the age of big data.

Abstract: The quality and quantity of data on economic activity are expanding rapidly. Empirical research increasingly relies on newly available large-scale administrative data or private sector data that often is obtained through collaboration with private firms. Here we highlight some challenges in accessing and using these new data. We also discuss how new data sets may change the statistical methods used by economists and the types of questions posed in empirical research.

Rebasing 'Maddison' : new income comparisons and the shape of long-run economic development

Abstract: Economists’ understanding of long-run economic development has greatly improved thanks to the historical statistics compiled by the late Angus Maddison. Yet his method for comparing income levels across countries and over time has come under increasing criticism. New estimates of comparative income level often show markedly different outcomes than Maddison’s projection (or extrapolation) method based on a single, modern-day relative income benchmark. In this paper, we draw on modern and historical cross-country income comparisons and incorporate these into a novel measure of real GDP per capita over the very long run. The resulting new version of the Maddison Project Database thereby does greater justice to historical insights and provides a fresh impetus for future research. We present applications to estimating cross-country income convergence and the Balassa-Samuelson effect and demonstrate that how our new measure of real GDP per capita is a substantial improvement. (JEL: C43, C82, E01, N10, O47) 1 Bolt: University of Groningen and Lund University, j.bolt@rug.nl, Inklaar: University of Groningen, r.c.inklaar@rug.nl, van Zanden: University of Utrecht, j.l.vanzanden@uu.nl, de Jong: University of Groningen, h.j.de.jong@rug.nl. We thank Bob Allen, Leticia Arroyo Abad, Luis Bertola, Steve Broadberry, Angus Deaton, John Devereux, Rob Feenstra, Alan Heston, Andre Hofman, Branko Milanovic, Leandro Prados de la Escosura, the Maddison Project Board in general, and participants at the World Economic History Congress 2015 in Kyoto, the Society for Economic Measurement 2016 in Thessaloniki, the International Comparisons Conference 2017 in Princeton, the Economic History Seminar in Wageningen and the CEPR Meeting in Dublin for helpful comments and suggestions.