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Menu costs, (s,S) rule, imperfect information and the neutrality of money

Author

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  • Franck Portier

    () (Université de Toulouse (GREMAQ, IDEI, LEERNA, Institut Universitaire de France and CEPR))

Abstract

A dynamic macroeconomic model of monopolistic competition and imperfect information with menu costs and (s,S) pricing rule is proposed, in the lines of Caballero and Engel [1991]. The model can be seen as an imperfect competition version of Lucas [1973] with menu costs. The presence of informational imperfection destroys the neutrality result of Caplin and Spulber [1987], and the effect of a monetary shock on output is shown to be an increasing function of the degree of strategic complementarity between firms.

Suggested Citation

  • Franck Portier, 2004. "Menu costs, (s,S) rule, imperfect information and the neutrality of money," Economics Bulletin, AccessEcon, vol. 5(7), pages 1-8.
  • Handle: RePEc:ebl:ecbull:eb-04e30003
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    References listed on IDEAS

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    1. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing and the General Equilibrium Dynamics of Money and Output," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 655-690.
    2. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-334, June.
    3. Andrew S. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 703-725.
    4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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