Showing papers on "Price level published in 2004"

Price dispersion in the small and in the large: evidence from an internet price comparison site

Abstract: This paper examines four million daily price observations for more than 1,000 consumer electronics products on the price comparison site http://Shopper.com. We find little support for the notion that prices on the Internet are converging to the ‘law of one price.’ In addition, observed levels of price dispersion vary systematically with the number of firms listing prices. The difference between the two lowest prices (the ‘gap’) averages 23 per cent when two firms list prices, and falls to 3.5 per cent in markets where 17 firms list prices. These empirical results are an implication of a general ‘clearinghouse’ model of equilibrium price dispersion.

Oil price shocks and the macroeconomy: What has been learned since 1996

Abstract: This paper reports on developments in theoretical and empirical understanding of the macroeconomic consequences of oil price shocks since 1996, when the U.S. Department of Energy sponsored a workshop summarizing the state of understanding of the subject. Four major insights stand out. First, theoretical and empirical analyses point to intra- and intersectoral reallocations in response to shocks, generating asymmetric impacts for oil price increases and decreases. Second, the division of responsibility for post-oil-price shock recessions between monetary policy and oil price shocks, has leaned heavily toward oil price shocks. Third, parametric statistical techniques have identified a stable, nonlinear, relationship between oil price shocks and GDPfrom the late 1940s through the third quarter of 2001. Fourth, the magnitude of effect of an oil price shock on GDP, derived from impulse response functions of oil price shocks in the GDP equation of a VAR, is around -0.05 and -0.06 as an elasticity, spread over two years, where the shock threshold is a price change exceeding a three-year high.

What really causes large price changes

Abstract: We study the cause of large fluctuations in prices on the London Stock Exchange. This is done at the microscopic level of individual events, where an event is the placement or cancellation of an order to buy or sell. We show that price fluctuations caused by individual market orders are essentially independent of the volume of orders. Instead, large price fluctuations are driven by liquidity fluctuations, variations in the market's ability to absorb new orders. Even for the most liquid stocks there can be substantial gaps in the order book, corresponding to a block of adjacent price levels containing no quotes. When such a gap exists next to the best price, a new order can remove the best quote, triggering a large midpoint price change. Thus, the distribution of large price changes merely reflects the distribution of gaps in the limit order book. This is a finite size effect, caused by the granularity of order flow: in a market where participants place many small orders uniformly across prices, such large...

Dynamic Relationships among GCC Stock Markets and Nymex Oil Futures

Abstract: 1. INTRODUCTION The Gulf Cooperation Council (GCC) is a customs union that consists of six members, including four major oil-exporting countries, which are important decision makers in the Organization of Petroleum Exporting Countries (OPEC). (1) The six members are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates (UAE). The non-OPEC members among them are Bahrain and Oman. In January 2003, these countries collectively accounted for about 16% of the world's 76.5 million barrels a day of total production. They possess 47% of the world's 1018.8 billion barrels of oil proven reserves. (2) For these countries, oil exports largely determine foreign earnings and governments' budget revenues and expenditures; thus they are the primary determinant of aggregate demand. (3) The aggregate demand effect influences corporate output and domestic price levels, which eventually impacts corporate earnings and stock market share prices. This demand effect can also indirectly impact share prices through its influence on expected inflation, which in turn affects the expected discount rate. Such a strong oil influence on the national economy makes these countries primary targets for investigating the links between oil prices and the performance of their stock markets. There has been a large volume of work examining the relationships among international financial markets; a good deal of work has also been devoted to the links between spot and futures petroleum prices. In contrast, little work has been done on the relationships between oil spot/futures prices and stock markets. Virtually all of this work has concentrated on a few industrial countries, namely, Canada, Germany, Japan, the United Kingdom, and the United States. No work has been done on the relationship between the stock markets of the GCC countries as an economic group and their links to the oil markets, despite the fact that the economies of these countries depend to a large extent on oil revenues and are thus susceptible to developments in the global oil market. Moreover, because each GCC country depends on oil to a different degree, comparisons between them form an interesting subject for more investigation and analysis. Additionally, the Saudi stock market, which is 9th among emerging stock markets in terms of market capitalization in 2003, is the true leader of the GCC and is thus worthy of study on its own. Furthermore, these markets can provide an additional venue for international stock diversification and portfolio formation. For example, the total GCC market return increased by more than 9% in 2002; returns ranged from 32% for Qatar to less than 1% for Saudi Arabia. In contrast, the Standard & Poor's 500 (S & P 500) FTSE, and DAX declined by about 23%, 21% and 44%, respectively, in that down year (see Figure 1). Surprisingly, the overall literature on the links between oil markets and financial markets is very limited. Jones and Kaul (1996) investigated the reaction of the U.S., Canadian, Japanese and U.K. stock prices to oil price shocks using quarterly data. Utilizing a standard cash-flow dividend valuation model, they found that for the United States and Canada this reaction can be accounted for entirely by the impact of oil shocks on real cash flows. The results for Japan and the United Kingdom were not as strong. Huang et al. (1996) used an unrestricted vector autoregression (VAR) model to examine the relationship between daily oil futures returns and daily U.S. stock returns. They found that oil futures returns lead some individual oil company stock returns, but they do not have much impact on broad-based market indices, such as the S & P 500. In a more recent study, Sadorsky (1999), using monthly data (1947:1-1996:4), examined the links between the U.S. fuel oil prices and the S & P 500 in an unrestricted VAR model that also included the short-term interest rate and industrial production. In contrast with Huang et al. …

International Evidence on Institutional Trading Behavior and Price Impact

Abstract: This study characterizes institutional trading in international stocks from 37 countries during 1997 to 1998 and 2001. We find that the underlying market condition is a major determinant of the price impact and, more importantly, of the asymmetry between price impacts of institutional buy and sell orders. In bullish markets, institutional purchases have a bigger price impact than sells; however, in the bearish markets, sells have a higher price impact. This differs from previous findings on price impact asymmetry. Our study further suggests that price impact varies depending on order characteristics, firm-specific factors, and cross-country differences.

Price Discrimination in Broadway Theater

Abstract: A common thread in the theory literature on price discrimination has been the ambiguous welfare effects for consumers and the rise in profit for firms, relative to uniform pricing. In this study I resolve the ambiguity for consumers and quantify the benefit for a firm. I describe a model of price discrimination that includes both second-degree and third-degree price discrimination. Using data from a Broadway play, I estimate the structural model and conduct various experiments to investigate the implications of alternative pricing policies. The observed price discrimination may improve the firm's profit by approximately 5%, relative to uniform pricing, while the difference for aggregate consumer welfare is negligible. Also, I show that the gain from changing prices in the face of fluctuating demand is small under the observed price discrimination.

Price Levels and Price Dispersion Within and Across Multiple Retailer Types: Further Evidence and Extension

Abstract: In this article, the authors develop hypotheses on how prices and price dispersion compare among pure-play Internet, bricks-and-mortar (traditional), and bricks-and-clicks (multichannel) retailers and test them through an empirical analysis of data on the book and compact disc categories in Italy during 2002. Their results, based on an analysis of 13,720 prkce quotes, show that when posted prices are considered, traditional retailers have the highest prices, followed by multichannel retailers, and pure-play e-tailers, in that order. However, when shipping costs are included, multichannel retailers have the highest prices, followed by pure-play e-tailers and traditional retailers, in that order. With regard to price dispersion, pure-play e-tailers have the highest range of prices, but the lowest standard deviation. Multichannel retailers have the highest standard deviation in prices with or without shipping costs. These findings suggest that online markets offer opportunities for retailers to differentiate within and across the retailer types.

Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market - eScholarship

Abstract: It has been documented that retail gasoline prices respond more quickly to increases in wholesale price than to decreases. However, there is very little theoretical or empirical evidence identifying the market characteristics responsible for this behavior. This paper presents a new theoretical model of asymmetric adjustment that empirically matches observed retail gasoline price behavior better than previously suggested explanations. I develop a “reference price” consumer search model that assumes consumers’ expectations of prices are based on prices observed during previous purchases. The model predicts that consumers search less when prices are falling. This reduced search results in higher profit margins and a slower price response to cost changes than when margins are low and prices are increasing. Following the predictions of the theory, I use a panel of gas station prices to estimate the response pattern of prices to a change in costs. Unlike previous empirical studies I focus on how profit margins (in addition to the direction of the cost change) affect the speed of price response. Estimates are consistent with the predictions of the reference price search model, and appear to contradict previously suggested explanations of asymmetric adjustment.

Alternative Forms of Economic Regulation and their Efficiency Implications for Airports

Abstract: This paper investigates the effects of different forms of price regulation on airport efficiency Our investigation takes into account the interaction between concession profits and price regulations Our results show that while ROR regulation may lead to over investment in capacity, price-cap regulation is prone to under-investment The extent of the under-investment is found to be less under the dual-till price cap than under the single-till price cap Our empirical investigation of capital input productivity and total factor productivity confirm the analytical findings In particular, the total factor productivity is greater under the dual-till price cap than under either the single-till price cap or single-till ROR Our analysis appears to support the argument made by several economists that dual till regulation would be better than the single-till regulation in terms of economic efficiency, especially for large and busy airports

Stylised Features of Price Setting Behaviour in Portugal: 1992-2001

Abstract: This paper identifies the empirical stylized features of price setting behaviour in Portugal using the micro-datasets underlying the consumer and the producer price indexes. The main conclusions are the following: 1 in every 4 prices change each month; there is a considerable degree of heterogeneity in price setting practices; consumer prices of goods change more often than consumer prices of services; producer prices of consumption goods vary more often than producer prices of intermediate goods; for comparable commodities, consumer prices change more often than producer prices; price reductions are common, as they account for around 40 per cent of total price changes; price changes are, in general, sizeable; finally, the price setting patterns at the consumer level seem to depend on the level of inflation as well as on the type of outlet.

Price Rigidity. Evidence from the French CPI Micro-data

Abstract: Based upon a large fraction of the price records used for computing the French CPI, we document consumer price rigidity in France. We first provide a methodological discussion of issues involved in estimating average price duration with micro-data. The average duration of prices in the sectors covered by the database (65% of the CPI) is then found to be around 8 months. A strong heterogeneity across sectors both in the average duration of prices and in the pattern of price setting is reported. There is no clear evidence of downward nominal rigidity, since price cuts are almost as frequent as price rises. Moreover, the average size of a change in price is quite large in both cases. Overall, while our results do not entail a clear conclusion about the existence of menu costs, there is evidence of both time-dependent and state-dependent price setting behaviors by retailers.

Welfare impacts of China's accession to the world trade organization

Abstract: Data from China's national rural and urban household surveys are used to measure and explain the welfare impacts of changes in goods and factor prices attributable to accession to the World Trade Organization (WTO). The price changes are estimated separately using a general equilibrium model to capture both direct and indirect effects of the initial tariff changes. The welfare impacts are first-order approximations based on a household model incorporating own-production activities calibrated to household-level data and imposing minimum aggregation. The results show negligible impacts on inequality and poverty in the aggregate. However, diverse impacts emerge across household types and regions, associated with heterogeneity in consumption behavior and income sources, with possible implications for compensatory policy responses.

Oil price volatility and the asymmetric response of gasoline prices to oil price increases and decreases

Abstract: This paper analyzes the effect of volatility in oil prices on the degree of asymmetry in the response of gasoline prices to oil price increases and decreases. Several time series measures of the asymmetry between the responses of gasoline prices to oil price increases and decreases and several measures of the oil price volatility are constructed. In all models, the degree of asymmetry in gasoline prices declines with an increase in oil price volatility. The results support the oligopolistic coordination theory as a likely explanation of the observed asymmetry and are not consistent with the standard search theory and the search theory with Bayesian updating.

Price Setting in France: New Evidence from Survey Data

Abstract: This paper reports the results of a survey conducted by the Banque de France during winter 2003-2004 to investigate the price-setting behavior of French manufacturing companies. Prices are found to adjust infrequently; the median firm modifies its price only once a year. Price reviews are more frequent than price changes; the median firm reviews its price quarterly. Firms are found to follow either time-dependent, state-dependent or both pricing rules. Moreover, the chosen interval of price reviews depends on the probability that changes in the firms' environment occur. Coordination failure and nominal contracts (either written or implicit) are the most important sources of price stickiness, while pricing thresholds and physical menu costs appear to be totally unimportant. Asymmetries in price stickiness are found to be different for cost shocks compared to demand shocks: prices are more rigid downward than upward for cost shocks, while the reverse is true for demand shocks.

What really causes large price changes

Abstract: We study the cause of large fluctuations in prices in the London Stock Exchange This is done at the microscopic level of individual events, where an event is the placement or cancellation of an order to buy or sell We show that price fluctuations caused by individual market orders are essentially independent of the volume of orders Instead, large price fluctuations are driven by liquidity fluctuations, variations in the market's ability to absorb new orders Even for the most liquid stocks there can be substantial gaps in the order book, corresponding to a block of adjacent price levels containing no quotes When such a gap exists next to the best price, a new order can remove the best quote, triggering a large midpoint price change Thus, the distribution of large price changes merely reflects the distribution of gaps in the limit order book This is a finite size effect, caused by the granularity of order flow: In a market where participants placed many small orders uniformly across prices, such large price fluctuations would not happen We show that this explains price fluctuations on longer timescales In addition, we present results suggesting that the risk profile varies from stock to stock, and is not universal: lightly traded stocks tend to have more extreme risks

Why are prices sticky? the dynamics of wholesale gasoline prices

Abstract: The menu-cost interpretation of sticky prices implies that the probability of a price change should depend on the past history of prices and fundamentals only through the gap between the current price and the frictionless price. We find that this prediction is broadly consistent with the behavior of nine Philadelphia gasoline wholesalers. Nevertheless, we reject the menu-cost model as a literal description of these firms' behavior, arguing instead that price stickiness arises from strategic considerations of how customers and competitors will react to price changes.

Oil Price Shocks and Real GDP Growth: Empirical Evidence for Some OECD Countries

Abstract: This paper assesses empirically the effects of oil price shocks on the real economic activity of the main industrialised countries. Multivariate VAR analysis is carried out using both linear and non-linear models. The latter category includes three approaches employed in the literature, namely, the asymmetric, scaled and net specifications. We find evidence of a non-linear impact of oil prices on real GDP. In particular, oil price increases are found to have an impact on GDP growth of a larger magnitude than that of oil price declines, with the latter being statistically insignificant in most cases. Among oil importing countries, oil price increases are found to have a negative impact on economic activity in all cases but Japan. Moreover, the effect of oil shocks on GDP growth differs between the two oil exporting countries in our sample, with oil price increases affecting the UK negatively and Norway positively.

The pricing behaviour of italian firms: new survey evidence on price stickiness

Abstract: This study examines price setting behaviour of Italian firms on the basis of survey data. Prices are mostly fixed following mark-up rules, although customer-specific characteristics have a role in some sectors. Rival prices mostly affect price strategies of industrial firms. In reviewing their prices, firms follow either state-dependent rules or a combination of time and state-dependent ones. A considerable degree of price stickiness emerges; in 2002 most firms changed their price only once. Three explanations are ranked highest: explicit contracts, tacit collusive behaviour and the temporary nature of the shock. Prices respond asymmetrically to shocks, depending on the direction of the required adjustment and the source of the shock. Real rigidities play an important role in determining this asymmetry. Cost shocks impact more when prices have to be raised than when they have to be reduced; demand decreases are more likely to induce a price change than demand increases.

Constructing price indexes across space and time: the case of the European Union

Abstract: This paper considers the problem of how to construct and reconcile price indexes across space and time. Six methods for constructing price indexes on a panel are proposed along with five criteria for discriminating between them. Using these methods, spatial and temporal price indexes are computed for the 15 countrie s of the European Union (EU) over the period 1995-2000 using a panel data set constructed by merging, at a low level of aggregation, the EU's Harmonized Index of Consumer Prices (HICP) with a cross-section of OECD data. These panel price indexes are then used to test whether or not price levels and relative prices converged across the EU over this period. JEL: C43, E31, O47

Deflation and Depression: Is There an Empirical Link?

Abstract: Are deflation and depression empirically linked? No, concludes a broad historical study of inflation and real output growth rates. Deflation and depression do seem to have been linked during the 1930s. But in the rest of the data for 17 countries and more than 100 years, there is virtually no evidence of such a link.

Price setting behaviour in Spain: stylised facts using consumer price micro data

Abstract: This paper identifies the basic features of the price setting mechanism in the Spanish economy, using a large dataset that contains over 1.1 million price records and covers around 70% of the expenditure on the CPI basket. In particular, the paper identifies differences in the frequency and size of price adjustments across types of products and explores how these general features are affected by certain specific factors: seasonality, the level of inflation, changes in indirect taxation and the practice of using psychological and round prices. We find that prices do not change often but do so by a large amount, although there is a marked heterogeneity across products. Moreover, the high frequency of price reductions suggests that there is no strong downward rigidity. Our evidence also supports the use of time and state-dependent pricing strategies. JEL Classification: E31, D40, C25

Monetary Policy and Asset Prices: A Look Back at Past U.S. Stock Market Booms

Abstract: This paper examines the economic environments in which past US stock market booms occurred as a first step toward understanding how asset price booms come about and whether monetary policy should be used to defuse booms We identify several episodes of sustained rapid rise in equity prices in the 19th and 20th Centuries, and then assess the growth of real output, productivity, the price level, money and credit stocks during each episode Two booms stand out in terms of their length and rate of increase in market prices -- the booms of 1923-29 and 1994-2000 In general, we find that booms occurred in periods of rapid real growth and productivity advance, suggesting that booms are driven at least partly by fundamentals We find no consistent relationship between inflation and stock market booms, though booms have typically occurred when money and credit growth were above average

The Fiscal Myth of the Price Level

Abstract: I examine the "fiscal theory of the price level" according to which "non-Ricardian" policy and predetermined nominal government debt fiscally determine prices. I argue that the non-Ricardian policy ...