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.
Authors
S. Borağan Aruoba, Andrés Fernández, Daniel Guzmán, Ernesto Pastén, Felipe Saffie
- Acknowledgements & Disclosure
- All results have been reviewed to ensure no confidential data are disclosed. The authors would like to thank Fernando Alvarez, Isaac Baley, Gadi Barlevy, Jesus Fernandez-Villaverde, Fabio Ghironi, Cosmin Ilut (discussant), Nils Gornemann, John Haltiwanger, Luminita Stevens, and seminar participants at the the University of Maryland, the IMF, the Federal Reserve Banks of Atlanta, Chicago, Cleveland, Philadelphia, and St. Louis, the BSE Summer Forum, the SITE Conference, among others. We are also grateful to Sebastian Gallardo and Eugene Oue for excellent research assistance. All remaining errors are our own. The views expressed in this paper are those of the authors and do not represent those of the IMF, IMF Management, or its Executive Board, nor those of the Central Bank of Chile or its Board, nor those of the National Bureau of Economic Research.
- DOI
- https://doi.org/10.3386/w32538
- Published in
- United States of America
Table of Contents
- Introduction 3
- Data 11
- The 2019 Riots in Chile 14
- Riots as a Quasi-Natural Experiment 15
- Empirical Results 19
- Baseline Results for Supermarkets 20
- Effect of Supply Factors on Supermarkets 22
- Now versus the Future: Intensity of Riots 23
- Summary of Empirical Results 25
- Quantitative Model 25
- Households 26
- Final Good Producer 27
- Intermediate Producers 29
- Equilibrium 31
- Quantitative Results 33
- Calibration 33
- News Shock and the Riots 35
- Policy Implications 41
- Conclusion 45
- Simple Model 51
- Pricing data 52
- Construction of datasets 52
- Comparing the Chilean pricing data 55
- Additional Empirical Results 56
- Unfiltered Prices 57
- Size Heterogeneity 58
- Labor Costs 58
- Matched Sample 60
- Model Appendix 62
- Model Derivations 62
- Solution Method and Algorithm 65
- Stationary Equilibrium 65
- Transition with News Shock in t=1 65
- Monetary Policy Shock 67
- Construction of Impulse Responses 71
