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Optimal Pricing, Inflation, and the Cost of Price Adjustment

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  • Eytan Sheshinski
    () (Hebrew University of Jerusalem)
  • Yoram Weiss
    () (Tel Aviv University)

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Abstract

What are the real effects of inflation? These collected articles constitute what is perhaps the definitive study of pricing models under inflation, providing a solid basis for further research on this elusive question. Covering a broad range of theory and applications by well-known microeconomists, the eighteen contributions evaluate the effects of inflation on aggregate output and on welfare and reveal the scope of recent efforts to explicitly incorporate frictions in economic models. A basic building block common to most of the essays in this volume is the observation that individual firms change nominal prices intermittently. The frequency and size of nominal price changes are influenced by the cost of price adjustment and changes in the economic environment, production costs, market demand, market structure, and most important, inflation. Thus the degree of nominal rigidity is influenced by the economic environment, and in a dynamic context. Two introductory essays survey the empirical studies of pricing policies by individual firms and the theoretical efforts to integrate the nominal rigidities at the micro level into macro relationships. The essays that follow treat the general problem of optimal dynamic adjustment in the presence of convex costs of adjustment, include applications of the inventory models to the case of nominal price adjustment by an individual firm, address the question of aggregation, introduce active search by consumers, and provide empirical analysis of nominal price rigidities.

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Bibliographic Info

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This book is provided by The MIT Press in its series MIT Press Books with number 0262193329 and published in 1993.

Volume: 1
Edition: 1
ISBN: 0-262-19332-9
Handle: RePEc:mtp:titles:0262193329

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Web page: http://mitpress.mit.edu

Related research

Keywords: inflation; pricing;

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Cited by:
  1. Daniel Levy & Georg Müller & Shantanu Dutta & Mark Bergen, 2002. "Holiday Price Rigidity and Cost of Price Adjustment," Working Papers 2002-03, Department of Economics, Bar-Ilan University.
  2. Jonathan Wadsworth, 2010. "Did the National Minimum Wage Affect UK Prices?," Fiscal Studies, Institute for Fiscal Studies, vol. 31(1), pages 81-120, 03.
  3. Ahlin, Christian & Shintani, Mototsugu, 2007. "Menu costs and Markov inflation: A theoretical revision with new evidence," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 753-784, April.
  4. Chi-Young Choi, 2010. "Reconsidering the Relationship between Inflation and Relative Price Variability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 769-798, 08.

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