Price, sales, and the business cycle: a time series principal component analysis. A new GLO Discussion Paper by GLO Fellow Fernando Borraz and colleagues.

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A new GLO Discussion Paper finds a positive and significant relationship between sales and unemployment, and performs a time series principal component analysis to study the relationship.

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Fernando Borraz

GLO Discussion Paper No. 735, 2020

Price, sales, and the business cycle: a time series principal component analysis – Download PDF
by Borraz, Fernando & Livan, Giacomo & Rodríguez-Martínez, Anahí & Ricardo, Pablo

GLO Fellow Fernando Borraz

Author Abstract: The main contribution of this work consist on studying sales behaviour and their relationship with local market conditions like labor market indicators through a time series principal component analysis. We study the correlation structure of a large database on prices and found that all product sectors share a common correlation structure and the highest correlation and significance is achieved between employment variation and the first principal component, mostly in the second week of the following month. Sales or promotions, are a channel for price flexibility because firms can use them to change effective prices keeping sticky reference prices. We use a rich database of retail prices from Uruguay to characterize prices’ flexibility, the behavior of sales, and their relationship with local market conditions like labor market indicators. Finally, we find a positive and significant relationship between sales and unemployment and perform a time series principal component analysis to study these relationships.

GLO Discussion Papers are research and policy papers of the GLO Network which are widely circulated to encourage discussion. Provided in cooperation with EconStor, a service of the ZBW – Leibniz Information Centre for Economics, GLO Discussion Papers are among others listed in RePEc (see IDEAS,  EconPapers). Complete list of all GLO DPs – downloadable for free.

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