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Inflation and Optimal Price Adjustment under Monopolistic Competition

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  • Caminal, Ramon

Abstract

This paper considers a model of a monopolistically competitive industry with a large number of firms producing imperfect substitutes. There is an exogenous inflation rate and each firm must pay a fixed cost every time it adjusts its nominal price. It is shown that, under quite general conditions, there exists a continuum of periodic and synchronized equilibria, each one associated with a different frequency of price adjustment. Consequently, the same frequency of price adjustment is compatible with a full range of inflation rates. Copyright 1992 by The London School of Economics and Political Science.

Suggested Citation

  • Caminal, Ramon, 1992. "Inflation and Optimal Price Adjustment under Monopolistic Competition," Economica, London School of Economics and Political Science, vol. 59(234), pages 179-197, May.
  • Handle: RePEc:bla:econom:v:59:y:1992:i:234:p:179-97
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    Cited by:

    1. Carlos Borondo, 1994. "La rigidez nominal de los precios de la Nueva Economía Keynesiana: una panorámica," Investigaciones Economicas, Fundación SEPI, vol. 18(2), pages 245-288, May.
    2. Lucke, Bernd, 1995. "Do small menu costs explain large business cycles?," Economics Letters, Elsevier, vol. 47(2), pages 185-192, February.

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