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Sticky Prices

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  • Roger E.A. Farmer

    (UCLA)

Abstract

The real world is characterized by sticky prices in the sense that prices do not respond rapidly to movements in other variables. Typically, one models this property by constructing artificial economies with frictions that prevent price flexibility. This paper constructs a model in which prices are perfectly free to move but, in equilibrium, they do not. The equilibrium mimics many of the observed features of the behavior of money, prices, interest rates, and output over the business cycle. Copyright 1991 by Royal Economic Society.

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File URL: http://www.econ.ucla.edu/workingpapers/wp588.pdf
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Bibliographic Info

Paper provided by UCLA Department of Economics in its series UCLA Economics Working Papers with number 588.

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Date of creation: 01 Jan 1990
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Handle: RePEc:cla:uclawp:588

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Web page: http://www.econ.ucla.edu/

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References

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  1. Azariadis, Costas, 1981. "A Reexamination of Natural Rate Theory," American Economic Review, American Economic Association, vol. 71(5), pages 946-60, December.
  2. Christopher A. Sims, 1989. "Models and their uses," Discussion Paper / Institute for Empirical Macroeconomics 11, Federal Reserve Bank of Minneapolis.
  3. Farmer, Roger E A, 1991. "The Lucas Critique, Policy Invariance and Multiple Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 321-32, April.
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Cited by:
  1. repec:fth:starer:9613 is not listed on IDEAS
  2. Kirill Sosunov, 2001. "Monetary neutrality in one specific class of DGE model with staggered prices," Macroeconomics 0112003, EconWPA.
  3. Giovanni Lombardo, . "Sticky Prices, Markup and the Business Cycle: Some Evidence," Discussion Papers 01/06, Department of Economics, University of York.
  4. Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1131-1159, September.
  5. Jess Benhabib & Roger Farmer, 1998. "The Monetary Transmission Mechanism," Levine's Working Paper Archive 2055, David K. Levine.
  6. Katharine S. Neiss & Evi Pappa, 2005. "Persistence without too much price stickiness: the role of variable factor utilization," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 231-255, January.
  7. William Kerr & Robert G. King, 1996. "Limits on interest rate rules in the IS model," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 47-75.
  8. Georges, Christophre, 2003. "Adjustment costs, learning, and indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 28(1), pages 101-116, October.
  9. Sveen, Tommy & Weinke, Lutz, 2007. "Firm-specific capital, nominal rigidities, and the Taylor principle," Journal of Economic Theory, Elsevier, vol. 136(1), pages 729-737, September.
  10. Michael T. Kiley, 1997. "Staggered price setting and real rigidities," Finance and Economics Discussion Series 1997-46, Board of Governors of the Federal Reserve System (U.S.).
  11. Giammarioli, Nicola, 2003. "Indeterminacy and search theory," Working Paper Series 0271, European Central Bank.

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