Ernesto Pasten
MEGA
Maison de l'économie et de la gestion d'Aix
424 chemin du viaduc
13080 Aix-en-Provence
Marco Fongoni: marco.fongoni[at]univ-amu.fr
Uros Herman: uros.herman[at]univ-amu.fr
Uncertainty triggers two confounding effects: a realization and an anticipation effect. By using the 2019 riots in Chile as a quasi-natural experiment, we show that the pricing behavior of supermarkets is consistent with a pure anticipation effect: during the 31-day period following the start of the Riots, supermarkets reduce the frequency of price changes and, conditional on a price change, the absolute magnitude of price changes increase. A quantitative menu cost model with news about a future increase in idiosyncratic demand dispersion can deliver these pricing dynamics. The effectiveness of monetary policy crucially depends on the timing of the intervention.