On the Stubbornness of Sticky Prices
AbstractThis paper presents a simple "menu cost" example in which there is a clear distinction between price stickiness and downward rigidity of prices. While price stickiness may or may not exist in "menu cost" models, downward rigidity shows up whenever there is a reduction of the expected rate of inflation. This reduction changes the optimal target and threshold for each firm. For some, it also implies an immediate increase of their own price. This upward jump of prices in case of a disinflationary attempt is interpreted as downward rigidity since there are no symmetric forces when expected inflation increases. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 32 (1991)
Issue (Month): 1 (February)
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