TY  - JOUR
AU  - Nakamura,Emi
AU  - Steinsson,Jón
TI  - Lost in Transit: Product Replacement Bias and Pricing to Market
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15359
PY  - 2009
Y2  - September 2009
UR  - http://www.nber.org/papers/w15359
L1  - http://www.nber.org/papers/w15359.pdf
N1  - Author contact info:
Emi Nakamura
Columbia Business School
3022 Broadway, Uris Hall 820
New York, NY 10027
Tel: 212/854-8162
E-Mail: enakamura@columbia.edu

Jón Steinsson
Department of Economics
Columbia University
1026 International Affairs Building
420 West 118th Street
New York, NY 10027
Tel: 212/854-3690
Fax: 212/854-8059
E-Mail: jsteinsson@columbia.edu
AB  - The microdata underlying U.S. import and export price indexes exhibit frequent product turnover and highly rigid prices.  As a consequence, 40% of products are replaced before a single price change is observed and 70% are replaced after two price changes or less. An aggregate price index that focuses on price changes for identical items over time may, therefore, miss an important component of price adjustment occurring at the time of product replacements.  We provide a model of this "product replacement bias" and quantify its importance using U.S. microdata on import and export prices.  We show that, accounting for product replacement bias, long-run exchange rate "pass-through" into U.S. import and export price indexes is almost twice as high as conventional estimates suggest, and changes in the terms of trade are roughly  75% more volatile.  Our adjustment makes pass-through statistics easier to account for with existing general equilibrium models.
ER  -