| dc.description.abstract | This dissertation consists of three chapters that explore business cycles and price dynamics. The first chapter examines the economics of stay-at-home orders during the advent of the Covid-19 outbreak. Using an event study framework, we find that stay-at-home orders caused a 4 percentage point decrease in consumer spending and hours worked. These estimates suggest a $10 billion decrease in spending and $15 billion in lost earnings. We then develop an economic SIR model with multiple locations to study the optimal implementation of stay-at-home orders. From a national welfare perspective, the model suggests that it is optimal for locations with higher infection rates to set stricter mitigation policies. This occurs as a common, national policy is too restrictive for mildly infected areas and causes greater declines in consumption and hours worked than are optimal. The second chapter examines the effect of retail chain price synchronization on the extent to which nominal shocks have real effects on the economy. I develop a menu cost model in which stores belong to retail chains. However, retail chains have imperfect information over store-level state variables when determining prices. This constraint affects how firms optimally choose the timing of their price changes also known as the selection effect. I find that selection effects are more than twice as large in the presence of retail chains compared to the standard menu cost model. This relationship suggests that the standard menu cost model overestimates the degree of monetary non-neutrality by ignoring synchronization in retail chain pricing. The third chapter explores the relationship between temporary sales and demand shocks. Using data from supermarkets, we find that the average price of a product decreases by almost 1.5% following a negative shock to demand. The standard practice of removing sales from the price distribution overestimates the degree of price rigidity by a factor of 2. We reconcile our empirical findings using a model in which sales occur in response to the accumulation of unwanted inventories. | |
