Imperfect information and staggered price setting
AbstractMany Keynesian macroeconomic models are based on the assumption that firms change prices at different times. This paper presents an explanation for this "staggered" price setting. We develop a model in which firms have imperfect knowledge of the current state of the economy and gain information by observing the prices set by others. This gives each firm an incentive to set its price shortly after as many firms as possible. Staggering can be the equilibrium outcome. In addition, the information gains can make staggering socially optimal even though it increases aggregate fluctuations.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number 86-08.
Date of creation: 1986
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- Laurence M. Ball & David Romer, 1989.
"Are Prices Too Sticky?,"
NBER Working Papers
2171, National Bureau of Economic Research, Inc.
- Laurence Ball & David Romer, 1989.
"The Equilibrium and Optimal Timing of Price Changes,"
NBER Working Papers
2412, National Bureau of Economic Research, Inc.
- Ball, Laurence & Romer, David, 1989. "The Equilibrium and Optimal Timing of Price Changes," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 179-98, April.
- Laurence Ball & David Romer, 1987. "The Equilibrium and Optimal Timing of Price Changes," NBER Working Papers 2432, National Bureau of Economic Research, Inc.
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