Description
Abstract: Price selection is a simple, model-free measure of selection in price setting. It exploits comovement between inflation and the level from which adjusting prices departed. Prices that increase from lower-than-usual levels tend to push inflation above average. Using micro data for the United Kingdom, the United States, and Canada, we find strong price selection at disaggregate levels. Price selection is stronger for goods with less frequent price changes or with larger average price changes. Aggregate price selection is considerably weaker. A multisector sticky-price model accounts well for this evidence and demonstrates a monotone relationship between price selection and monetary non-neutrality.