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U.S. data reveal three facts: (1) the share of goods in total expenditure declines at a constant rate over time, (2) the price of goods relative to services declines at a constant rate over time, and (3) poor households spend a larger fraction of their budget on goods than do rich households. I provide a macroeconomic model with non-Gorman preferences that rationalizes these facts, along with the aggregate Kaldor facts. The model is parsimonious and admits an analytical solution. Its functional form allows a decomposition of U.S. structural change into an income and substitution effect. Estimates from micro data show each of these effects to be of roughly equal importance.

This paper shows that an income effect can drive expenditure switching between domestic and imported goods. We use a unique Latvian scanner-level dataset, covering the 2008–2009 crisis, to document several empirical findings. First, expenditure switching accounted for one-third of the fall in imports, and took place within narrowly defined product groups. Second, there was no corresponding within-group change in relative prices. Third, consumers substituted from expensive imports to cheaper domestic alternatives. These findings motivate us to estimate a model of nonhomothetic consumer demand, which explains two-thirds of the observed expenditure switching. Estimated switching is driven by income, not changes in relative prices.

Purpose – This study analyses the outbound tourism demand of Central Asia to 76 destinations for the twenty-one-year period (1995-2015). The main objective is to investigate the extent to which economic and non-economic determinants impact the volume of outbound tourism flows in Central Asia. Methodology/Design/Approach – The study formalizes the static panel data, the set of 76 destinations, and five Central Asia countries. The application of the gravity model has been employed using the least squares dummy variables (LSDV) estimation technique. Findings – The findings reveal that the outbound tourism demand of Central Asia is found to be highly income elastic and price inelastic. Costs of transportation and visa restrictions between bilateral countries cause a substantial decline in the number of overseas travel. Among other factors, a peaceful political environment in a destination is defined as a key element to attract tourists from Central Asia. Originality of the research – This research represents the first attempt to analyse outbound tourism demand in Central Asia, taking into account factors in both the origin and destination countries, such as visa restrictions, political stability, tourist income, the price of goods and services, and common language

This paper investigates the dynamic interactions of the cross‐section distribution of sectoral price changes and the output growth in the Chinese economy. We compare in depth the results of Granger causality tests, Impulse Response, and Forecast Error Variance Decompositions from Mixed Sampling Frequency Vector Autoregression (MFVAR) with those from common frequency vector autoregression (VAR). It shows that potential causalities for inflation, relative price variability, relative price skewness, and output growth can be successfully detected by the MFVAR. The cross‐section distribution of sectoral price changes stands to be a fundamental determinant of fluctuations in the aggregate economy, not only in the short run but also in the long run. Moreover, the empirical results are robust to the identification restrictions imposed as well as to alternative measures for model variables. Our findings are in line with the predictions of a standard sticky‐price model, and thus pricing frictions are important factors behind the short‐run nonneutrality of nominal shocks. We highlight the primacy of the information contained in the higher‐order moments of cross‐section distribution of sectoral price changes. We propose that policy authorities should make proper use of all of the valuable information available, particularly those embodied in the distribution of sectoral prices.

It has long been popularly believed that the relationship between inflation and relative price variability (RPV) is positive and stable. Using disaggregated CPI data for the United States and Japan, however, this study finds that the relationship is neither linear nor stable over time. The overall relationship is approximately U-shaped around a nonzero threshold inflation rate. RPV therefore changes not with the inflation rate per se, but with the deviation of inflation from the threshold inflation rate. More importantly, the relationship is by no means stable over time but instead varies significantly in a way that coincides with regime changes of inflation or monetary policy. The relationship was positive during the period of high inflation of the 1970s and the early 1980s, as has been documented by a number of previous studies, whereas it takes a U-shape profile during the Great Moderation. The results are robust to the use of core inflation, which excludes the traditionally volatile prices of food and energy. This paper then presents a modified version of the Calvo-type sticky price model to describe the observed empirical regularities. Simulation experiments show that the modified Calvo model fits the data well, and that the underlying relationship hinges upon the degree of price rigidity, which is systematically related to inflation regime. For countries and periods with low inflation rates, the relationship takes a U-shape as price adjustment is more sticky. In a high-inflation environment, when price setting becomes more flexible, the U-shaped profile vanishes.

Relative price trends mean that monetary policy cannot stabilize the nominal prices of all consumption categories. If prices are sticky, monetary policy must then trade off distortions within different categories; more weight should be placed on stabilizing prices for which adjustment entails greater distortions. With exogenous price stickiness, a simple model calibrated to U.S. data implies that slight deflation is optimal even absent money-demand considerations. If price stickiness is endogenous (because of fixed costs of adjustment), small inflation or small deflation can be optimal, depending on whether demand conditions or price adjustment costs vary across sectors.

Several previous studies have found evidence that oil and natural gas prices in the United States are cointegrated. There is also evidence, however, that the relationship is unstable. One explanation is that technological changes alter the substitutability between natural gas and oil products. We reaffirm this finding, but also find evidence that the exchange rate influences the relative price of oil to natural gas in the United States. As in previous studies, we again find that short run departures from long run equilibrium are influenced by weather, product inventories, other seasonal factors and supply shocks such as severe tropical storms in the Gulf of Mexico.

Emerging price optimization models systematically incorporate competitor price information into the derivation of optimal price points. While consideration of competitor pricing at this tactical level is essential to maximizing short-term revenues, the long-term impact of competitive price positioning on revenue performance should not be overlooked. This study examines the effect of two key dimensions of strategic price positioning – relative price position and relative price fluctuation – on the revenue performance of 6998 US hotels over an 11-year period. It finds that revenue performance is strongest for hotels that price higher than the competition and maintain a consistent relative price over time. Implications for revenue management practitioners are discussed.

A large and growing share of retail prices all over the world are posted online on the websites of retailers. This is a massive and (until recently) untapped source of retail price information. Our objective with the Billion Prices Project, created at MIT in 2008, is to experiment with these new sources of information to improve the computation of traditional economic indicators, starting with the Consumer Price Index. We also seek to understand whether online prices have distinct dynamics, their advantages and disadvantages, and whether they can serve as reliable source of information for economic research. The word “billion” in Billion Prices Project was simply meant to express our desire to collect a massive amount of prices, though we in fact reached that number of observations in less than two years. By 2010, we were collecting 5 million prices every day from over 300 retailers in 50 countries. We describe the methodology used to compute online price indexes and show how they co-move with consumer price indexes in most countries. We also use our price data to study price stickiness, and to investigate the “law of one price” in international economics. Finally we describe how the Billion Prices Project data are publicly shared and discuss why data collection is an important endeavor that macro- and international economists should pursue more often.