"Are Online and Offline Prices Similar? Evidence from Large Multi-Channel Retailers"

Alberto Cavallo

American Economic Review, January 2017, Vol 107 (1)

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Abstract: Online prices are increasingly used for measurement and research applications, yet little is known about their relation to prices in physical stores, where most retail transactions occur. I conduct the first large-scale comparison of prices simultaneously collected from the websites and physical stores of 56 large multi-channel retailers in 10 countries. I find that price levels are identical about 72 percent of the time. Price changes are not synchronized but have similar frequencies and average sizes. These results have im- plications for national statistical offices, researchers using online data, and anyone interested in the effect of the Internet on retail prices.

"Inflation Expectations, Learning and Supermarket Prices - Evidence from Survey Experiments"

Alberto Cavallo, Guillermo Cruces and Ricardo Perez-Truglia

American Economic Journal: Macroeconomics, Forthcoming

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Abstract: Information frictions play a central role in the formation of household inflation expectations, but there is no consensus about their origins. We address this question with novel evidence from survey experiments. We document two main findings. First, individuals in lower-inflation contexts have significantly weaker priors about the inflation rate. This finding suggests that rational inattention may be an important source of information frictions. Second, cognitive limitations also appear to be a source of information frictions: even when information about inflation statistics is made readily available, individuals still place a significant weight on less accurate sources of information, such as their memories of the price changes of the supermarket products they purchase. We discuss the implications of these findings for macroeconomic models and policy-making.

"The Billion Prices Project: Using Online Prices for Measurement and Research"

Journal of Economic Perspectives, Spring 2016, Vol 30(2): 151-78

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Abstract: New data-gathering techniques, often referred to as “Big Data,” have the potential to improve statistics and empirical research in economics. This paper presents one example of how this can be achieved by using the vast number of online prices displayed on the web. We describe our work with the Billion Prices Project at MIT, and emphasize key lessons that can be used for both inflation measurement and some fundamental research questions in macro and international economics. In particular, we show how online prices can be used to construct daily price indexes in multiple countries and to avoid measurement biases that distort evidence of price stickiness and international relative prices.