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On Endogenously Staggered Prices

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  • Bhaskar, V

Abstract

Taylor's model of staggered contracts is an influential explanation for nominal inertia and the persistent real effects of nominal shocks. However, in standard imperfect competition models, if agents are allowed to choose the timing of pricing decisions, they will typically choose to synchronize. This paper provides a simple model of imperfect competition which produces stable staggering. Our argument relies on strategic interaction at two levels--between firms within an industries, and across industries--and produces a continuum of staggered price equilibria. These equilibria are strict, and hence stable under a simple adaptive learning process. Copyright 2002 by The Review of Economic Studies Limited

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 69 (2002)
Issue (Month): 1 (January)
Pages: 97-116

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Handle: RePEc:bla:restud:v:69:y:2002:i:1:p:97-116

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  1. Ball, Laurence & Cecchetti, Stephen G, 1988. "Imperfect Information and Staggered Price Setting," American Economic Review, American Economic Association, vol. 78(5), pages 999-1018, December.
  2. Olivier J. Blanchard, 1985. "The Wage Price Spiral," Working papers 400, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-89, April.
  4. repec:nbr:nberre:0126 is not listed on IDEAS
  5. Laurence Ball & David Romer, 1987. "The Equilibrium and Optimal Timing of Price Changes," NBER Working Papers 2412, National Bureau of Economic Research, Inc.
  6. Eric Maskin & Jean Tirole, 1985. "A Theory of Dynamic Oligopoly, II: Price Competition," Working papers 373, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  8. Caplin, Andrew S & Spulber, Daniel F, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 703-25, November.
  9. Matsukawa, Shigeru, 1986. "The Equilibrium Distribution of Wage Settlements and Economic Stability," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 415-37, June.
  10. Domberger, Simon & Fiebig, Denzil G, 1993. "The Distribution of Price Changes in Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 41(3), pages 295-313, September.
  11. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May.
  12. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," Econometrica, Econometric Society, vol. 68(5), pages 1151-1180, September.
  13. Louis Phaneuf, 1990. "Wage Contracts and the Unit Root Hypothesis," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 580-92, August.
  14. Olivier J. Blanchard, 1982. "Price Asynchronization and Price Level Inertia," NBER Working Papers 0900, National Bureau of Economic Research, Inc.
  15. Tsiddon, Daniel, 1993. "The (Mis)Behaviour of the Aggregate Price Level," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 889-902, October.
  16. Caminal, R., 1988. "Inflation And Optimal Price Adjustment Under Monopolistic Competition," UFAE and IAE Working Papers 90.88, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  17. De Fraja, Giovanni, 1993. "Staggered vs. synchronised wage setting in oligopoly," European Economic Review, Elsevier, vol. 37(8), pages 1507-1522, December.
  18. Parkin, Michael, 1986. "The Output-Inflation Trade-off When Prices Are Costly to Change," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 200-224, February.
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