The Equilibrium and Optimal Timing of Price Changes
AbstractThis paper studies the welfare properties of the equilibrium timing of price changes. Staggered price-setting has the advantage that it permits rapid adjustment to firm-specific shocks but the disadvantage that it causes price level inertia and therefore increases aggregate fluctuations. Because each firm ignores its contribution to inertia, staggering can be a stable equilibrium even if it is highly inefficient. In addition, there can be multiple equilibria in the timing of price changes; indeed, whenever there is an inefficient staggered equilibrium, there is also an efficient equilibrium with synchronized price-setting.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2412.
Date of creation: Dec 1989
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Other versions of this item:
- 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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