Ernesto Pasten

Thematic seminars
Macro and labor market seminar

Ernesto Pasten

Central Bank of Chile
Pricing under Distress
Venue

MEGA

MEGA

Maison de l'économie et de la gestion d'Aix
424 chemin du viaduc
13080 Aix-en-Provence

Date(s)
Friday, November 8 2024| 12:30pm to 1:30pm
Contact(s)

Marco Fongoni: marco.fongoni[at]univ-amu.fr
Uros Herman: uros.herman[at]univ-amu.fr

Abstract

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.