In macroeconomic models, the level of price dispersion - which is typically approximated through its relationship with … between inflation and output stability. While the comovement of price dispersion and inflation implied by standard models is … positive, I find that in the data, it is negative. This is due to transitory price changes (sales): if sales are removed from …

Using a model of dynamic price competition, this paper provides an explanation from the supply side for the well … adjust their prices only after a cost reduction materializes, and the firms' incentives for price undercutting lead to the …