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Nominal shocks in monopolistically competitive markets: An experiment

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  • Davis, Douglas
  • Korenok, Oleg

Abstract

A market experiment examines the capacity of price and information frictions to explain real responses to nominal price shocks. Results indicate that both price and information frictions impede the response to a nominal shock, as predicted by the standard dynamic adjustment models. Observed adjustment delays, however, far exceed predicted levels. Results of a pair of subsequent treatments indicate that a combination of announcing the shock privately to all sellers (rather than publicly) and a failure of many sellers to best respond to their expectations explains the observed adjustment inertia.

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Bibliographic Info

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

Volume (Year): 58 (2011)
Issue (Month): 6 ()
Pages: 578-589

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Handle: RePEc:eee:moneco:v:58:y:2011:i:6:p:578-589

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

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Cited by:
  1. Tiziana Assenza & Jakob Grazzini & Cars Hommes & Domenico Massaro, 2014. "PQ Strategies in Monopolistic Competition: Some Insights from the Lab," DISCE - Working Papers del Dipartimento di Economia e Finanza def11, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  2. Graf Lambsdorff, Johann & Schubert, Manuel & Giamattei, Marcus, 2011. "On the role of heuristics: Experimental evidence on inflation dynamics," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-63-11, University of Passau, Faculty of Business and Economics.

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