Do product returns in the retail sector affect the price level?
Evidence from the equation of exchange
Additional information
Authors
Beretta E.,
Neuberger D.,
Senner R.
Type
Journal Article
Year
2023
Language
English
Abstract
Starting from Irving Fisher’s equation of exchange ( MV = PT ) at the basis of the quantity theory of money and mainstream (macro)economics linking money ( M ) and its frequency of circulation (V ) on the one hand to the general price level ( P ) and real goods and services exchanged (T ) on the other, we analyze whether product returns by consumers (reaching 16.5% of total US sales in 2022) affect macroeconomic variables such as the price level and the velocity of money. We explore two different product-return scenarios: (1) reselling, and (2) destroying returned items. Based on a theoretical analysis and data for the US, we find that reselling product returns at a discount price reduces the price level, which is however not taken into account in the statistical measurement of the consumer price index. Moreover, the “modern” equation of exchange used in mainstream macroeconomics is an unsuitable instrument to study the effects of product returns on money velocity, because it neglects non-GDP-relevant transactions such as returning and reselling products. This leads to underestimate the actual velocity of money.
Keywords
Deflation and inflation, Irving Fisher’s equation of exchange, Product returns, Retail sector, Sustainable reverse logistics
Journal
Eurasian Economic Review
Number ( Month )
13
Pages (or article number)
499–513
Diffusion
License
CC BY
Visibility
Public
Status open access
Hybrid
