Equilibrium Price Dispersion and Rigidity: A New Monetarist Approach
AbstractWhy do some sellers set prices in nominal terms that do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption. Here it is a result. We use search theory, with two consequences: prices are set in dollars since money is the medium of exchange; and equilibrium implies a nondegenerate price distribution. When money increases, some sellers keep prices constant, earning less per unit but making it up on volume, so profit is unaffected. The model is consistent with the micro data. But, in contrast with other sticky-price models, money is neutral.
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Bibliographic InfoPaper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 10-034.
Length: 45 pages
Date of creation: 03 Sep 2010
Date of revision:
Search; Sticky Prices; Monetary Policy;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-30 (All new papers)
- NEP-CBA-2010-10-30 (Central Banking)
- NEP-DGE-2010-10-30 (Dynamic General Equilibrium)
- NEP-MON-2010-10-30 (Monetary Economics)
- NEP-OPM-2010-10-30 (Open Economy Macroeconomic)
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.:
- Boragan Aruoba, S. & Rocheteau, Guillaume & Waller, Christopher, 2007.
"Bargaining and the value of money,"
Journal of Monetary Economics,
Elsevier, vol. 54(8), pages 2636-2655, November.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
- Rodolfo E. Manuelli & Adrian Peralta-Alva, 2011. ""Frictions in financial and labor markets": a summary of the 35th Annual Economic Policy Conference," Review, Federal Reserve Bank of St. Louis, issue July, pages 273-292.
- Liang Wang, 2011. "Inflation and Welfare with Search and Price Dispersion," Working Papers 201113, University of Hawaii at Manoa, Department of Economics.
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