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Steady-state equilibrium with state-dependent pricing

  • John, A.Andrew
  • Wolman, Alexander L.

State-dependent pricing models are now an operational framework for quantitative business cycle analysis. The analysis in Ball and Romer [1991. Sticky prices as coordination failure. American Economic Review 81 (3), 539-552], however, suggests that such models may be rife with multiple equilibria, for in their static model, price adjustment is always characterized by complementarity, a necessary condition for multiplicity. We study existence and uniqueness of steady-state equilibrium in a discrete-time state-dependent pricing model. We find only weak complementarity and no evidence of multiplicity. However, nonexistence of symmetric steady-state equilibrium with pure strategies arises in the region of the parameter space between flexible and sticky prices.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 55 (2008)
Issue (Month): 2 (March)
Pages: 383-405

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Handle: RePEc:eee:moneco:v:55:y:2008:i:2:p:383-405
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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  1. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
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