Modeling Price Rigidity or Predicting the Quality of the Good that Clears the Market
AbstractTo say that the price of some good is inflexible over time has little meaning if the "good" is changing over time. In this paper we concentrate on delivery lags as being the only dimension other than price that varies. We show how one can predict the relative importance of price and delivery lag fluctuations as equilibrating mechanisms. The complications of the theory as well as the surprising results underscore the complexity of predicting price behavior when the characteristics of the good are endogenous. The empirical results provide strong support for the theory that delivery lags are an important influence on market behavior and therefore that an understanding of their influence is crucial in predicting how markets will respond to supply and demand shocks.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0503.
Date of creation: Jul 1980
Date of revision:
Publication status: published as Carlton, Dennis. "Equilibrium Fluctuations when Price and Delivery Lags Clear the Market," The Bell Journal of Economics, Vol. 14, No. 2, Autumn 1983,pp. 562-572.
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NBER Working Papers
0621, National Bureau of Economic Research, Inc.
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