Advanced Search
MyIDEAS: Login

Consumers' Imperfect Information and Price Rigidities

Contents:

Author Info

  • Jean-Paul L'Huillier

    (EIEF)

Abstract

This paper develops a model of price rigidities and information diffusion in decentralized markets with private information. First, I provide a strategic microfoundation for price rigidities, by showing that firms are better off delaying the adjustment of prices when they face a high number of uninformed consumers. Second, in an environment where consumers learn from firms' prices, the diffusion of information follows a Bernoulli differential equation. Therefore, learning follows nonlinear dynamics. Third, the price rigidity produces an informational externality that affects welfare. Fourth, the dynamics of output are hump-shaped due to consumer learning.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.eief.it/files/2012/09/wp-09-consumers-imperfect-information-and-price-rigidities.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 1209.

as in new window
Length: 55 pages
Date of creation: 2012
Date of revision: Aug 2012
Handle: RePEc:eie:wpaper:1209

Contact details of provider:
Postal: Via Sallustiana, 62 - 00187 Roma
Phone: +39 066790013
Fax: +39 0647924872
Email:
Web page: http://www.eief.it/repec
More information through EDIRC

Related research

Keywords:

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. KIM, Jinill & RUGE-MURCIA, Francisco J., 2007. "How Much Inflation is Necessary to Grease the Wheels?," Cahiers de recherche 11-2007, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. Filip Matejka, 2010. "Rigid Pricing and Rationally Inattentive Consumer," CERGE-EI Working Papers wp409, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  3. Ricardo Reis, 2005. "Inattentive Producers," 2005 Meeting Papers 290, Society for Economic Dynamics.
  4. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
  5. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Harvard Institute of Economic Research Working Papers 1922, Harvard - Institute of Economic Research.
  6. Mackowiak, Bartosz Adam & Wiederholt, Mirko, 2007. "Optimal Sticky Prices under Rational Inattention," CEPR Discussion Papers 6243, C.E.P.R. Discussion Papers.
  7. Benabou, Roland & Gertner, Robert, 1993. "Search with Learning from Prices: Does Increased Inflationary Uncertainty Lead to Higher Markups?," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 69-94, January.
  8. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  9. Laura Veldkamp & Alessandra Fogli, 2009. "Nature or Nurture? Learning and the Geography of Female Labor Force Participation," 2009 Meeting Papers 141, Society for Economic Dynamics.
  10. Robert E. Lucas Jr. & Nancy L. Stokey, 1984. "Money and Interest in Cash-In-Advance Economy," Discussion Papers 628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
  12. Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, vol. 50(2), pages 381-413, April.
  13. Mackowiak, Bartosz Adam & Wiederholt, Mirko, 2010. "Business Cycle Dynamics under Rational Inattention," CEPR Discussion Papers 7691, C.E.P.R. Discussion Papers.
  14. Manuel Amador & Pierre-Olivier Weill, 2010. "Learning from Prices: Public Communication and Welfare," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 866 - 907.
  15. Cover, James Peery, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1261-82, November.
  16. Mikhail Golosov & Guido Lorenzoni & Aleh Tsyvinski, 2009. "Decentralized Trading with Private Information," NBER Working Papers 15513, National Bureau of Economic Research, Inc.
  17. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
  18. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  19. Heidhues, Paul & Köszegi, Botond, 2005. "The Impact of Consumer Loss Aversion on Pricing," CEPR Discussion Papers 4849, C.E.P.R. Discussion Papers.
  20. Venky Venkateswaran & Christian Hellwig, 2009. "Setting The Right Prices for the Wrong Reasons," 2009 Meeting Papers 260, Society for Economic Dynamics.
  21. Emi Nakamura & Jon Steinsson, 2005. "Price Setting in a Forward-Looking Customer Market," Macroeconomics 0509010, EconWPA.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eie:wpaper:1209. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Facundo Piguillem).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.