Price dispersion squeezing during economic downturns

Time: 2011, Tuesday February 15, 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Ad Stokman (DNB)

Discussant: Riemer Faber (CPB)

Language: English

Registration:  Please register by sending an email to seminars@cpb.nl.

Abstract subject: Half a century of price level dispersion data for Europe enables us to isolate short-term influences from long-term influences like market integration. In this paper we find that at the business cycle frequency, price dispersion across 11 EMU countries over the 1960 - 2009 period is significantly lower during economic downturns. The justification for such a squeeze lies in increased price sensitivity of economic agents during economic downturns. Our model is capable of explaining most part of the major drops in price level dispersion during severe economic recessions of the early 1970s, 1980s and 1990s, as well as the small change during the recent financial crisis.

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