Seasonality is among the most salient features of price changes, but it is notably less analyzed than seasonality of quantities and the business cycle component of price changes. To fill this gap, we use the scanner data of 199 categories of goods in Japan to empirically study the seasonality of price changes from 1990 to 2021. We find that the following four features generally hold for most categories: (1) The frequency of price increases and decreases rises in March and September; (2) Seasonal components of the frequency of price changes are negatively correlated with those of the size of price changes; (3) Seasonal components of the inflation rate track seasonal components of net frequency of price changes; (4) The seasonal pattern of the frequency of price changes is responsive to changes in the category-level annual inflation rate for the year. We use simple state-dependent price models and show seasonal cycles in menu costs play an essential role in generating seasonality of price changes.
It is widely known among both scholars and policymakers that the time series of prices have a sizable degree of seasonality. Figure 1 shows the decomposition of the yearly growth rate of the CPI, for all items and for goods less fresh food and energy, into twelve month-to-month changes within the same year in Japan. It can be seen that there are months in which prices generally increase, such as March and April, and months in which prices generally decrease, such as January and February. Such seasonal patterns have been stable from the 1990s to 2020s.
WP052
This paper introduces financial market frictions into a standard New Keynesian model through search and matching in the credit market. Under such financial market frictions, a second-order approximation of social welfare includes a term involving credit, in addition to terms for inflation and consumption. As a consequence, the optimal monetary and macroprudential policies must contribute to both financial and price stability. This result holds for various approximated welfares that can change corresponding to macroprudential policy variables. The key features of optimal policies are as follows. The optimal monetary policy requires keeping the credit market countercyclical against the real economy. Commitment in monetary and macroprudential policy, rather than approximated welfare, justifies history dependence and pre-emptiveness. Appropriate combinations of macroprudential and monetary policy achieve perfect financial and price stability.
The serious economic disruptions caused by financial crises reveal the critical roles played by financial markets in the U.S. and the Euro area. Acknowledging that the current policy framework cannot fully mitigate nor avoid financial crises, policymakers have begun to shed light on two policy measures. The first is monetary policy, which aims to achieve, in addition to traditional policy goals, stability of the financial system. The second is a new policy tool, macroprudential policy geared toward financial stability.
