IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices

  • Davis, Michael C
  • Hamilton, James D

The menu-cost interpretation of sticky prices implies that the probability of a price change should depend on the past history of prices and fundamentals only through the gap between the current price and the frictionless price. We find that this prediction is broadly consistent with the behavior of nine Philadelphia gasoline wholesalers. Nevertheless, we reject the menu-cost model as a literal description of these firms' behavior, arguing instead that price stickiness arises from strategic considerations of how customers and competitors will react to price changes.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 36 (2004)
Issue (Month): 1 (February)
Pages: 17-37

as
in new window

Handle: RePEc:mcb:jmoncb:v:36:y:2004:i:1:p:17-37
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Severin Borenstein & Andrea Shepard, 1996. "Sticky Prices, Inventories, and Market Power in Wholesale Gasoline Markets," Working Papers _001, University of California at Berkeley, Haas School of Business.
  2. James D. Hamilton & Oscar Jorda, 2000. "A Model for the Federal Funds Rate Target," NBER Working Papers 7847, National Bureau of Economic Research, Inc.
  3. Julio J. Rotemberg, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 517-531.
  4. Robert J. Barro, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Oxford University Press, vol. 39(1), pages 17-26.
  5. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
  6. Benabou, R., 1991. "Inflation and Markups: Theories and Evidence from the Retail Trade Sector," Working papers 587, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U. S. Supermarket Chains," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 791-824.
  8. Margaret E. Slade & G.R.E.Q.A.M., 1998. "Optimal Pricing with Costly Adjustment: Evidence from Retail-Grocery Prices," Review of Economic Studies, Oxford University Press, vol. 65(1), pages 87-107.
  9. Roland Benabou, 1988. "Search, Price Setting and Inflation," Review of Economic Studies, Oxford University Press, vol. 55(3), pages 353-376.
  10. Peter C.B. Phillips & Joon Y. Park, 1999. "Nonstationary Binary Choice," Cowles Foundation Discussion Papers 1223, Cowles Foundation for Research in Economics, Yale University.
  11. Ball, L. & Mankiw, N.G., 1992. "Asymmetric Price Adjustment and Economic Fluctuations," Harvard Institute of Economic Research Working Papers 1602, Harvard - Institute of Economic Research.
  12. Nathan S. Balke & Stephen P. A. Brown & Mine Yücel, 1998. "Crude oil and gasoline prices: an asymmetric relationship?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q 1, pages 2-11.
  13. Avinash Dixit, 1991. "Analytical Approximations in Models of Hysteresis," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 141-151.
  14. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
  15. Godby, Rob & Lintner, Anastasia M. & Stengos, Thanasis & Wandschneider, Bo, 2000. "Testing for asymmetric pricing in the Canadian retail gasoline market," Energy Economics, Elsevier, vol. 22(3), pages 349-368, June.
  16. Konieczny, Jerzy D, 1993. "Variable Price Adjustment Costs," Economic Inquiry, Western Economic Association International, vol. 31(3), pages 488-98, July.
  17. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
  18. John Bennett & Manfredi M. A. La Manna, 2001. "Reversing the Keynesian Asymmetry," American Economic Review, American Economic Association, vol. 91(5), pages 1556-1563, December.
  19. Leif Danziger, 1998. "A Dynamic Economy with Costly Price Adjustment," Cahiers de recherche CREFE / CREFE Working Papers 83, CREFE, Université du Québec à Montréal.
  20. Jeffrey D. Karrenbrock, 1991. "The behavior of retail gasoline prices: symmetric or not?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 19-29.
  21. Julio J. Rotemberg, 2002. "Customer Anger at Price Increases, Time Variation in the Frequency of Price Changes and Monetary Policy," NBER Working Papers 9320, National Bureau of Economic Research, Inc.
  22. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  23. Anil K Kashyap, 1995. "Sticky Prices: New Evidence from Retail Catalogs," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 245-274.
  24. Chalkley, Martin, 1997. "An explicit solution for dynamic menu costs with zero discounting," Economics Letters, Elsevier, vol. 57(2), pages 189-195, December.
  25. Severin Borenstein & A. Colin Cameron, 1992. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," NBER Working Papers 4138, National Bureau of Economic Research, Inc.
  26. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-58, September.
  27. Eden, Benjamin, 1990. "Marginal Cost Pricing When Spot Markets Are Complete," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1293-1306, December.
  28. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-89, April.
  29. Shantanu Dutta & Mark Bergen & Daniel Levy & Robert Venable, 2005. "Menu Costs, Posted Prices, and Multiproduct Retailers," Macroeconomics 0505007, EconWPA.
  30. Daniel Tsiddon, 1993. "The (Mis)Behaviour of the Aggregate Price Level," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 889-902.
  31. Victor Aguirregabiria, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, Oxford University Press, vol. 66(2), pages 275-308.
  32. Eytan Sheshinski & Yoram Weiss, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Oxford University Press, vol. 44(2), pages 287-303.
  33. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc.
  34. Bev Dahlby, 1992. "Price Adjustment in an Automobile Insurance Market: A Test of the Sheshinski-Weiss Model," Canadian Journal of Economics, Canadian Economics Association, vol. 25(3), pages 564-83, August.
  35. Sbordone, Argia, 1998. "Prices and Unit Labor Costs: A New Test of Price Stickiness," Seminar Papers 653, Stockholm University, Institute for International Economic Studies.
  36. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 529-538.
  37. Engle, Robert F. & Russell, Jeffrey R., 1997. "Forecasting the frequency of changes in quoted foreign exchange prices with the autoregressive conditional duration model," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 187-212, June.
  38. Hansen, Per Svejstrup, 1999. "Frequent price changes under menu costs," Journal of Economic Dynamics and Control, Elsevier, vol. 23(7), pages 1065-1076, June.
  39. Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, vol. 74(2), pages 350-55, May.
  40. Carlson, John A, 1992. "Some Evidence on Lump Sum versus Convex Costs of Changing Prices," Economic Inquiry, Western Economic Association International, vol. 30(2), pages 322-31, April.
  41. Hall, Simon & Walsh, Mark & Yates, Anthony, 2000. "Are UK Companies' Prices Sticky?," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 425-46, July.
Full references (including those not matched with items on IDEAS)

This item is featured on the following reading lists or Wikipedia pages:

  1. Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices (JMCB 2004) in ReplicationWiki

When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:36:y:2004:i:1:p:17-37. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.