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Menu Costs and the Neutrality of Money

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  • Caplin, Andrew S
  • Spulber, Daniel F

Abstract

A model of endogenous price adjustment under money growth is presented. Firms follow (s, S) pricing policies and price revisions are imperfectly synchronized. In the aggregate, price stickiness disappears and money is neutral. The connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated. The results contrast with those obtained in models with exogenous fixed timing of price adjustment.

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Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 102 (1987)
Issue (Month): 4 (November)
Pages: 703-25

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Handle: RePEc:tpr:qjecon:v:102:y:1987:i:4:p:703-25

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References

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  1. Richard Ehrhardt, 1979. "The Power Approximation for Computing (s, S) Inventory Policies," Management Science, INFORMS, vol. 25(8), pages 777-786, August.
  2. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  3. Barro, Robert J, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 39(1), pages 17-26, January.
  4. Benabou, Roland, 1989. "Optimal Price Dynamics and Speculation with a Storable Good," Econometrica, Econometric Society, vol. 57(1), pages 41-80, January.
  5. D. W. Carlton, 1976. "Market Behavior With Demand Uncertainty and Price Inflexibility," Working papers 179, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Danziger, Leif, 1984. "Stochastic Inflation and the Optimal Policy of Price Adjustment," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 98-108, January.
  7. Laurence M. Ball & David Romer, 1987. "Are Prices Too Sticky?," NBER Working Papers 2171, National Bureau of Economic Research, Inc.
  8. Cukierman, Alex, 1979. "The Relationship between Relative Prices and the General Price Level: A Suggested Interpretation," American Economic Review, American Economic Association, vol. 69(3), pages 444-47, June.
  9. Rotemberg, Julio J, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 517-31, October.
  10. Zvi Hercowitz, 1980. "Money and the Dispersion of Relative Prices," NBER Working Papers 0431, National Bureau of Economic Research, Inc.
  11. Olivier J. Blanchard, 1982. "Price Asynchronization and Price Level Inertia," NBER Working Papers 0900, National Bureau of Economic Research, Inc.
  12. Liebermann, Yehoshua & Zilberfard, Ben-Zion, 1985. "Price adjustment strategy under conditions of high inflation: An empirical examination," Journal of Economics and Business, Elsevier, vol. 37(3), pages 253-265, August.
  13. Gordon, Robert J, 1981. "Output Fluctuations and Gradual Price Adjustment," Journal of Economic Literature, American Economic Association, vol. 19(2), pages 493-530, June.
  14. Pagan, A R & Hall, A D & Trivedi, P K, 1983. "Assessing the Variability of Inflation," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 585-96, October.
  15. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
  16. R. Glenn Hubbard & Robert J. Weiner, 1985. "Nominal Contracting and Price Flexibility in Product Markets," NBER Working Papers 1738, National Bureau of Economic Research, Inc.
  17. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  18. Mussa, Michael, 1981. "Sticky Prices and Disequilibrium Adjustment in a Rational Model of the Inflationary Process," American Economic Review, American Economic Association, vol. 71(5), pages 1020-27, December.
  19. Caplin, Andrew S, 1985. "The Variability of Aggregate Demand with (S, s) Inventory Policies," Econometrica, Econometric Society, vol. 53(6), pages 1395-1409, November.
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  1. More On Sticky Prices
    by Josh in The Everyday Economist on 2012-04-13 14:51:12
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