Does Dynamic Pricing Vary According to the Business Cycle?
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Predicting and controlling the business cycle is considered being an end phenomenon of macroeconomic analysis and up to this point, the fundamental principles of firm pricing have been almost completely overlooked. Recent macroeconomic analysis literature in macroeconomics indicated that firms do not often track macroeconomic information such as the inflation rate and other key information and similar work has only attempted work on links between inflation and pricing. Using firm-level survey data I conduct an exploration of any links between dynamic pricing and business cycles through the usage of descriptive statistics and linear regression techniques with a comparison towards the literature. Our results show that while firms do believe that the business cycle plays an important part in decision making, there is no clear link between the two in themselves with a P-value of 0.13. We conclude that rational inattention may play a large part in why this is the case and infer that a similar approach to how inflation expectations were tracked, may uncover the degree of rational inattention towards real GDP growth, further questioning the effectiveness of monetary policy enacted by the NZ Reserve Bank.