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

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  • Knotek II, Edward S.

Abstract

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.

Suggested Citation

  • Knotek II, Edward S., 2008. "Convenient prices, currency, and nominal rigidity: Theory with evidence from newspaper prices," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1303-1316, October.
  • Handle: RePEc:eee:moneco:v:55:y:2008:i:7:p:1303-1316
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    Cited by:

    1. Daniel Levy & Dongwon Lee & Haipeng (Allan) Chen & Robert J. Kauffman & Mark Bergen, 2011. "Price Points and Price Rigidity," The Review of Economics and Statistics, MIT Press, pages 1417-1431.
    2. Levy, Daniel & Snir, Avichai, 2017. "Potterian Economics," MPRA Paper 76344, University Library of Munich, Germany.
    3. repec:hrv:faseco:33907956 is not listed on IDEAS
    4. Michael Weber, 2014. "Nominal Rigidities and Asset Pricing," 2014 Meeting Papers 53, Society for Economic Dynamics.
    5. Edward S. Knotek, 2010. "The roles of price points and menu costs in price rigidity," Research Working Paper RWP 10-18, Federal Reserve Bank of Kansas City.
    6. repec:eee:jmacro:v:52:y:2017:i:c:p:252-267 is not listed on IDEAS
    7. Michel Beine & Étienne Farvaque, 2011. "Clause de non-renouvellement et rigidité des prix. Résultats sur le secteur de l'édition en France," Revue économique, Presses de Sciences-Po, vol. 62(1), pages 57-66.
    8. Lee, Manjong, 2010. "Carrying cost of money and real effects of denomination structure," Journal of Macroeconomics, Elsevier, pages 326-337.
    9. Edward S. Knotek, 2011. "Convenient Prices and Price Rigidity: Cross-Sectional Evidence," The Review of Economics and Statistics, MIT Press, pages 1076-1086.
    10. Tschoegl, Adrian E., 2010. "The international diffusion of an innovation: The spread of decimal currency," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(1), pages 100-109, January.
    11. Edward S. Knotek, 2011. "Convenient Prices and Price Rigidity: Cross-Sectional Evidence," The Review of Economics and Statistics, MIT Press, pages 1076-1086.
    12. Ward, Felix & Chen, Yao, 2016. "Rigid relations: External adjustment under the Gold Standard (1880-1913)," Annual Conference 2016 (Augsburg): Demographic Change 145930, Verein für Socialpolitik / German Economic Association.
    13. repec:rim:rimwps:04-07 is not listed on IDEAS
    14. Alan Kackmeister, 2007. "Yesterday's Bad Times Are Today's Good Old Times: Retail Price Changes Are More Frequent Today Than in the 1890s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 1987-2020, December.
    15. Bouhdaoui, Y. & Bounie, D. & François, A., 2014. "Convenient prices, cash payments and price rigidity," Economic Modelling, Elsevier, vol. 41(C), pages 329-337.

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