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Convenient prices, currency, and nominal rigidity: Theory with evidence from newspaper prices

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  • Knotek II, Edward S.

Abstract

Certain items' prices are often set to simplify and expedite transactions, by coinciding with available monetary units, requiring few pieces of money, or requiring little change. In this sense, these prices are more convenient than other proximate prices. This paper models a firm that explicitly incorporates convenience into its pricing decisions--where convenience is quantified by the number of currency units in a transaction--and illustrates the theoretical behaviors that can arise. Newspaper cover price data empirically support the theory. Across a broader range of goods and services, convenience appears to play a role in effecting above-average nominal price rigidity.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 55 (2008)
Issue (Month): 7 (October)
Pages: 1303-1316

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Handle: RePEc:eee:moneco:v:55:y:2008:i:7:p:1303-1316

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Web page: http://www.elsevier.com/locate/inca/505566

Related research

Keywords: Convenient prices Price rigidity Menu costs Newspaper pricing;

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References

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Citations

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Cited by:
  1. Lee, Manjong, 2010. "Carrying cost of money and real effects of denomination structure," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 326-337, March.
  2. Daniel Levy & Dongwon Lee & Haipeng (Allan) Chen & Robert J. Kauffman & Mark Bergen, 2011. "Price Points and Price Rigidity," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1417-1431, November.
  3. Alan Kackmeister, 2007. "Yesterday's Bad Times Are Today's Good Old Times: Retail Price Changes Are More Frequent Today Than in the 1890s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 1987-2020, December.
  4. Michel Beine & Étienne Farvaque, 2011. "Clause de non-renouvellement et rigidité des prix. Résultats sur le secteur de l'édition en France," Revue économique, Presses de Sciences-Po, vol. 62(1), pages 57-66.
  5. Edward S. Knotek II, 2008. "Convenient prices and price rigidity: cross-sectional evidence," Research Working Paper RWP 08-04, Federal Reserve Bank of Kansas City.
  6. Tschoegl, Adrian E., 2010. "The international diffusion of an innovation: The spread of decimal currency," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(1), pages 100-109, January.
  7. Edward S. Knotek II, 2010. "The roles of price points and menu costs in price rigidity," Research Working Paper RWP 10-18, Federal Reserve Bank of Kansas City.

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