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Can More Frequent Price Changes Lead to Price Inertia? Nonneutralities in a State-Dependent Pricing Context

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  • Conlon, John R
  • Liu, Christina Y

Abstract

The authors present a generalized (s,S) state-dependent pricing model in which menus are changed, not just in response to price misalignment but also in response to factors such as changing product mix. Their model generates aggregate price inertia, and so reverses an important earlier result on neutrality in state-dependent pricing contexts in more general settings than previous modifications. It also provides a compromise between state- and time-dependent rules, gives a glimpse at the dynamic implications of menu cost models, and reproduces two recent results: one on Phillips curve slopes and one on asymmetric fluctuations. Copyright 1997 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article 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): 38 (1997)
Issue (Month): 4 (November)
Pages: 893-914

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Handle: RePEc:ier:iecrev:v:38:y:1997:i:4:p:893-914

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Cited by:
  1. Marco Bonomo & Carlos Carvalho, 2008. "Imperfectly credible disinflation under endogenous time-dependent pricing," Staff Reports 355, Federal Reserve Bank of New York.
  2. Robert Amano & Don Coletti & Tiff Macklem, 1999. "Monetary Rules When Economic Behaviour Changes," Cahiers de recherche CREFE / CREFE Working Papers 81, CREFE, Université du Québec à Montréal.
  3. Kevin X.D. Huang & Jonathan Willis, 2012. "Sectoral Interactions and Monetary Policy Under Costly Price Adjustments," 2012 Meeting Papers 883, Society for Economic Dynamics.
  4. Marco Bonomo & Carlos Viana de Carvalho, 2004. "Endogenous Time-Dependent Rules and the Costs of Disinflation with Imperfect Credibility," Macroeconomics 0402006, EconWPA, revised 04 Sep 2005.
  5. Bonomo, Marco Antônio Cesar, 2000. "Are One-Sided S,s Rules Useful Proxies For Optimal Pricing Rules?," Economics Working Papers (Ensaios Economicos da EPGE) 369, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).

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