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Convenient prices, currency, and nominal rigidity: Theory with evidence from newspaper prices

  • Knotek II, Edward S.

Certain items' prices are often set to simplify and expedite transactions, by coinciding with available monetary units, requiring few pieces of money, or requiring little change. In this sense, these prices are more convenient than other proximate prices. This paper models a firm that explicitly incorporates convenience into its pricing decisions--where convenience is quantified by the number of currency units in a transaction--and illustrates the theoretical behaviors that can arise. Newspaper cover price data empirically support the theory. Across a broader range of goods and services, convenience appears to play a role in effecting above-average nominal price rigidity.

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

Volume (Year): 55 (2008)
Issue (Month): 7 (October)
Pages: 1303-1316

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Handle: RePEc:eee:moneco:v:55:y:2008:i:7:p:1303-1316
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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