Competitiveness, market power and price stickiness: A paradox and a resolution
AbstractAre prices less sticky when markets are more competitive? Our intuition would naturally lead us to give an affirmative answer to that question. But we first show that DSGE models with staggered price or wage contracts have actually the opposite and paradoxical property, namely that price stickiness is an increasing function of competitiveness. To eliminate this paradox, we next study a model where monopolistic competitors choose prices optimally subject to a cost of changing prices as in Rotemberg (1982a,b). For a given cost function, we find the more intuitive result that more competitiveness leads to more flexible prices.
Download InfoIf 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.
Bibliographic InfoPaper provided by HAL in its series PSE Working Papers with number halshs-00590559.
Date of creation: Dec 2005
Date of revision:
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00590559
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
sticky prices ; Calvo prices ; cost of changing prices;
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.:
- Hairault, J.O. & Portier, F., 1992.
"Money New-Keynesian Macroeconomics and the Business Cycles,"
Papiers d'Economie MathÃÂ©matique et Applications
92.32, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- Hairault, Jean-Olivier & Portier, Franck, 1993. "Money, New-Keynesian macroeconomics and the business cycle," European Economic Review, Elsevier, vol. 37(8), pages 1533-1568, December.
- Huang, Kevin X. D. & Liu, Zheng, 2002.
"Staggered price-setting, staggered wage-setting, and business cycle persistence,"
Journal of Monetary Economics,
Elsevier, vol. 49(2), pages 405-433, March.
- K. Huang & Z. Liu, . "Staggered price-setting, staggered wage-setting, and business cycle persistence," Working Papers 2000-28, Utah State University, Department of Economics.
- Ascari, Guido & Rankin, Neil, 2002.
"Staggered wages and output dynamics under disinflation,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 26(4), pages 653-680, April.
- Ascari, G. & Rankin, N., 2000. "Staggered Wages and Output Dynamics under Disinflation," The Warwick Economics Research Paper Series (TWERPS) 557, University of Warwick, Department of Economics.
- Collard, Fabrice & Ertz, Guy, 1996.
"Stochastic Nominal Wage Contacts in a Cash-in-Advance Model,"
Discussion Papers (IRES - Institut de Recherches Economiques et Sociales)
1997017, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Jul 1997.
- Fabrice COLLARD & Guy ERTZ, 2000. "Stochastic Nominal Wage Contracts in a Cash-in-Advance model," Discussion Papers (REL - Recherches Economiques de Louvain) 2000032, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Kim, Jinill, 2000. "Constructing and estimating a realistic optimizing model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 329-359, April.
- Ascari, G., 1997.
"Optimizing Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks,"
The Warwick Economics Research Paper Series (TWERPS)
486, University of Warwick, Department of Economics.
- Ascari, Guido, 2000. "Optimising Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," Economic Journal, Royal Economic Society, vol. 110(465), pages 664-86, July.
- Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If references are entirely missing, you can add them using this form.