Menu costs, (s,S) rule, imperfect information and the neutrality of money
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 . The model can be seen as an imperfect competition version of Lucas  with menu costs. The presence of informational imperfection destroys the neutrality result of Caplin and Spulber , and the effect of a monetary shock on output is shown to be an increasing function of the degree of strategic complementarity between firms.
Volume (Year): 5 (2004)
Issue (Month): 7 ()
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- Andrew C. Caplin & Daniel F. Spulber, 1987.
"Menu Costs and the Neutrality of Money,"
NBER Working Papers
2311, National Bureau of Economic Research, Inc.
- 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.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- 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.
- Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
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