Nominal Price Shocks in Monopolistically Competitive Markets: An Experimental Analysis
AbstractWe report a market experiment that examines the capacity of price and information frictions to explain real responses to nominal price shocks. As predicted by the standard dynamic adjustment models, we find that both price and information frictions impede the response to a nominal shock. We also find, however, that the observed adjustment delays far exceed predicted levels. Results of a pair of subsequent treatments indicate that a combination of announcing the shock privately to all sellers (rather than publicly) and a failure of many sellers to best respond to their expectations explains the observed adjustment inertia.
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Bibliographic InfoPaper provided by VCU School of Business, Department of Economics in its series Working Papers with number 1003.
Length: 27 pages
Date of creation: Jun 2010
Date of revision: Jun 2011
Market Experiments; Price Rigidities; Information Rigidities; Bounded Rationality;
Find related papers by JEL classification:
- C9 - Mathematical and Quantitative Methods - - Design of Experiments
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-03 (All new papers)
- NEP-CBA-2010-07-03 (Central Banking)
- NEP-EXP-2010-07-03 (Experimental Economics)
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