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Price Rigidity and Flexibility: Recent Theoretical Developments

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  • Levy, Daniel

Abstract

The price system, the adjustment of prices to changes in market conditions, is the primary mechanism by which markets function and by which the three most basic questions get answered: what to produce, how much to produce and for whom to produce. To the behaviour of price and price system, therefore, have fundamental implications for many key issues in microeconomics and industrial organization, as well as in macroeconomics and monetary economics. In microeconomics, managerial economics, and industrial organization, economists focus on the price system efficiency. In macroeconomics and monetary economics, economists focus on the extent to which nominal prices fail to adjust to changes in market conditions. Nominal price rigidities play particularly important role in modern monetary economics and in the conduct of monetary policy because of their ability to explain short-run monetary non-neutrality. The behaviour of prices, and in particular the extent of their rigidity and flexibility, therefore, is of central importance in economics. This introductory essay briefly summarizes the eight studies of price rigidity that are included in this special issue.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2761.

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Date of creation: 17 Apr 2007
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Handle: RePEc:pra:mprapa:2761

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Keywords: Price Rigidity; Price Flexibility; Cost of Price Adjustment; Menu Cost; Managerial and Customer Cost of Price Adjustment; New Keynesian Economics; Price System;

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References

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  1. Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Heterogeneity in Price Rigidity: Evidence from a Case Study Using Micro-Level Data," Macroeconomics, EconWPA 0402021, EconWPA.
  2. Young, Andrew & Levy, Daniel, 2013. "Explicit Evidence of an Implicit Contract," MPRA Paper 49174, University Library of Munich, Germany.
  3. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
  4. Mankiw, N Gregory, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(2), pages 529-38, May.
  5. Wai-Yip Alex Ho & James Yetman, 2007. "The real effects of inflation in continuous versus discrete time sticky price models," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(6), pages 633-638.
  6. Daniel Levy & Frank Smets, 2010. "Price setting and price adjustment in some European Union Countries: introduction to the special issue," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 63-66.
  7. Mark Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2003. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," Working Papers, Bar-Ilan University, Department of Economics 2003-07, Bar-Ilan University, Department of Economics.
  8. Akerlof, George A & Yellen, Janet L, 1985. "A Near-rational Model of the Business Cycle, with Wage and Price Intertia," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(5), pages 823-38, Supp..
  9. Levy, Daniel, 2007. "Price Rigidity and Flexibility: New Empirical Evidence," MPRA Paper 2762, University Library of Munich, Germany.
  10. Mankiw, N Gregory, 2001. "The Inexorable and Mysterious Tradeoff between Inflation and Unemployment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 111(471), pages C45-61, May.
  11. Mankiw, N. Gregory & Reis, Ricardo, 2002. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Scholarly Articles 3415324, Harvard University Department of Economics.
  12. Gadi Fibich & Arieh Gavious & Oded Lowengart, 2007. "Optimal price promotion in the presence of asymmetric reference-price effects," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(6), pages 569-577.
  13. Levy, Daniel, et al, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(3), pages 791-825, August.
  14. Daniel Levy & Shantanu Dutta & Mark Bergen & Robert Venable, 2005. "Price Adjustment at Multiproduct Retailers," Industrial Organization, EconWPA 0505005, EconWPA.
  15. El-Agraa,Ali (ed.), 2007. "The European Union," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521874434.
  16. Alexander L. Wolman, 2000. "The frequency and costs of individual price adjustments," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Fall, pages 1-22.
  17. Gil S. Epstein, 2007. "Production, inventory and waiting time," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(6), pages 579-589.
  18. James Yetman, 2007. "Explaining hump-shaped inflation responses to monetary policy shocks," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(6), pages 605-617.
  19. Akerlof, George A & Yellen, Janet L, 1985. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?," American Economic Review, American Economic Association, American Economic Association, vol. 75(4), pages 708-20, September.
  20. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
  21. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  22. Shantanu Dutta & Mark Bergen & Daniel Levy & Robert Venable, 2005. "Menu Costs, Posted Prices, and Multiproduct Retailers," Macroeconomics, EconWPA 0505007, EconWPA.
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Cited by:
  1. Levy, Daniel & Smets, Frank, 2010. "Price Setting and Price Adjustment in Some European Union Countries: Introduction to the Special Issue," MPRA Paper 27617, University Library of Munich, Germany.
  2. Daniel Levy, 2007. "Price rigidity and flexibility: new empirical evidence," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 639-647.
  3. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky information versus sticky prices: a proposal to replace the New-Keynesian Phillips curve," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Jun.
  4. Georg Müller & Mark Bergen & Shantanu Dutta & Daniel Levy, 2007. "Non-price rigidity and cost of adjustment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 817-832.

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