Advanced Search
MyIDEAS: Login to save this paper or follow this series

Price Inertia and Inflation: Evidence and Theoretical Rationale

Contents:

Author Info

  • M. Ishaq Nadiri
Registered author(s):

    Abstract

    In this paper we look at some empiricel evidence of and theoretical rationale for price inflexibility in the face of a decrease in short run demand in the Western-type industrialized economies. The empirical evidence suggests that price sluggishness is pervasive but varies across markets, industries and countries. There are different reasons for the price inertia. The response of firms to uncertainty, the cost of adjusting prices, the contents of the long- term contracts in the goods and input markets, the extent and variability of excess demand may differ among firms and industries. The structure of the industry, the degree of heterogeneity of the products in a market, the network of input-output relationship among industries, the nature of international competition, the process of forming expectations about the future, shocks from monetary and fiscal policies and input price shocks, all interact and create the ever changing environment of the firms. In these changing circumstances there are incentives for prices to be sluggish and thus arises the dilemma of achieving price stability at a high cost of unemployment. The ability of governments to achieve stable prices is probably endogenous in the system and may depend on a threshold rate of inflation. A number of policy options are discussed to address the issue of price inertia which would reduce the adjustment burden of anti-inflationary policies.

    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.nber.org/papers/w2022.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2022.

    as in new window
    Length:
    Date of creation: Sep 1986
    Date of revision:
    Publication status: published as Nadiri, M.I. "Price Inertia and Inflation: Evidence and Theoretical Rationale," in Structural Change, Economic Interdependence and World Development , ed. by Luigi Pasinetti and Peter Lloyd, Vol. 3, Houndsmill and London: Macmillan, 1987, pp. 329-357.
    Handle: RePEc:nbr:nberwo:2022

    Note: PR
    Contact details of provider:
    Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Email:
    Web page: http://www.nber.org
    More information through EDIRC

    Related research

    Keywords:

    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. Gordon, Robert J, 1980. "A Consistent Characterization of a Near-Century of Price Behavior," American Economic Review, American Economic Association, American Economic Association, vol. 70(2), pages 243-49, May.
    2. Hay, George A, 1970. "Production, Price, and Inventory Theory," American Economic Review, American Economic Association, American Economic Association, vol. 60(4), pages 531-45, September.
    3. Maccini, Louis J, 1981. "Adjustment Lags, Economically Rational Expectations and Price Behavior," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 213-22, May.
    4. Ross, Stephen A & Wachter, Michael L, 1975. "Pricing and Timing Decisions in Oligopoly Industries," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 89(1), pages 115-37, February.
    5. Rotemberg, Julio J, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(4), pages 517-31, October.
    6. Thomas J. Sargent, 1982. "The Ends of Four Big Inflations," NBER Chapters, in: Inflation: Causes and Effects, pages 41-98 National Bureau of Economic Research, Inc.
    7. Phlips, Louis, 1980. "Intertemporal Price Discrimination and Sticky Prices," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(3), pages 525-42, May.
    8. Olivier J. Blanchard, 1982. "Price Asynchronization and Price Level Inertia," NBER Working Papers 0900, National Bureau of Economic Research, Inc.
    9. Kuran, Timur, 1983. "Asymmetric Price Rigidity and Inflationary Bias," American Economic Review, American Economic Association, American Economic Association, vol. 73(3), pages 373-82, June.
    10. Wachter, Michael L, 1976. "Some Problems in Wage Stabilization," American Economic Review, American Economic Association, American Economic Association, vol. 66(2), pages 65-71, May.
    11. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, Elsevier, vol. 4(2), pages 103-124, April.
    12. Alan S. Blinder, 1981. "Inventories and Sticky Prices: More on the Microfoundations of Macroeconomics," NBER Working Papers 0620, National Bureau of Economic Research, Inc.
    13. Michael Bruno & Jeffrey Sachs, 1982. "Input Price Shocks and the Slowdown in Economic Growth: The Case of U.K.Manufacturing," NBER Working Papers 0851, National Bureau of Economic Research, Inc.
    14. Bruno, Michael & Sachs, Jeffrey, 1982. "Input Price Shocks and the Slowdown in Economic Growth: The Case of U.K. Manufacturing," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(5), pages 679-705, Special I.
    15. Popkin, Joel, 1977. "An Integrated Model of Final and Intermediate Demand by Stage of Process: A Progress Report," American Economic Review, American Economic Association, American Economic Association, vol. 67(1), pages 141-47, February.
    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:nbr:nberwo:2022. 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: ().

    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.