A0535
Title: The effects of price endings on price rigidity: Evidence from VAT changes
Authors: Edward Knotek - Federal Reserve Bank of Cleveland (United States) [presenting]
Abstract: Micro price data underlying the CPI in Israel reveal that most stores have a favored price ending--a final digit to the right of the decimal, usually zero or nine, used for a large majority of prices. Using VAT rate changes as exogenous shocks that affect prices regardless of their ending digit, we find that the frequency of adjustment for non-favoured price endings increases by twice as much as the frequency of adjustment for favored endings, consistent with favored endings playing a causal role in generating price rigidity. In the aggregate, favored endings produce sluggish pass-through of VAT rate changes.
