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Sticky Prices

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  • Roger E.A. Farmer

    (UCLA)

Abstract

The real world is characterized by sticky prices in the sense that prices do not respond rapidly to movements in other variables. Typically, one models this property by constructing artificial economies with frictions that prevent price flexibility. This paper constructs a model in which prices are perfectly free to move but, in equilibrium, they do not. The equilibrium mimics many of the observed features of the behavior of money, prices, interest rates, and output over the business cycle. Copyright 1991 by Royal Economic Society.
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Suggested Citation

  • Roger E.A. Farmer, 1990. "Sticky Prices," UCLA Economics Working Papers 588, UCLA Department of Economics.
  • Handle: RePEc:cla:uclawp:588
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    File URL: http://www.econ.ucla.edu/workingpapers/wp588.pdf
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    References listed on IDEAS

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    1. Roger E. A. Farmer, 1991. "The Lucas Critique, Policy Invariance and Multiple Equilibria," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 321-332.
    2. Christopher A. Sims, 1989. "Models and Their Uses," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(2), pages 489-494.
    3. Azariadis, Costas, 1981. "A Reexamination of Natural Rate Theory," American Economic Review, American Economic Association, vol. 71(5), pages 946-960, December.
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    Citations

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    Cited by:

    1. Kirill Sosunov, 2001. "Monetary neutrality in one specific class of DGE model with staggered prices," Macroeconomics 0112003, EconWPA.
    2. Georges, Christophre, 2003. "Adjustment costs, learning, and indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 28(1), pages 101-116, October.
    3. Jess Benhabib & Roger E.A. Farmer, 2000. "The Monetary Transmission Mechanism," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 523-550, July.
    4. Giammarioli, Nicola, 2003. "Indeterminacy and search theory," Working Paper Series 271, European Central Bank.
    5. Michael T. Kiley, 1997. "Staggered price setting and real rigidities," Finance and Economics Discussion Series 1997-46, Board of Governors of the Federal Reserve System (U.S.).
    6. Roger E.A. Farmer & Konstantin Platonov, 2016. "Animal Spirits in a Monetary Model," NBER Working Papers 22136, National Bureau of Economic Research, Inc.
    7. Farmer, Roger E A, 2017. "Post Keynesian Dynamic Stochastic General Equilibrium Theory," CEPR Discussion Papers 11807, C.E.P.R. Discussion Papers.
    8. repec:cvs:starer:9613 is not listed on IDEAS
    9. Katharine S. Neiss & Evi Pappa, 2005. "Persistence without too much price stickiness: the role of variable factor utilization," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 231-255, January.
    10. Giovanni Lombardo, "undated". "Sticky Prices, Markup and the Business Cycle: Some Evidence," Discussion Papers 01/06, Department of Economics, University of York.
    11. William Kerr & Robert G. King, 1996. "Limits on interest rate rules in the IS model," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 47-75.
    12. Roger E.A. Farmer, 2013. "Animal Spirits, Financial Crises and Persistent Unemployment-super-," Economic Journal, Royal Economic Society, vol. 0, pages 317-340, May.
    13. Farmer, Roger E.A., 2000. "Two New Keynesian Theories Of Sticky Prices," Macroeconomic Dynamics, Cambridge University Press, vol. 4(01), pages 74-107, March.
    14. Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1131-1159, September.
    15. Sveen, Tommy & Weinke, Lutz, 2007. "Firm-specific capital, nominal rigidities, and the Taylor principle," Journal of Economic Theory, Elsevier, vol. 136(1), pages 729-737, September.

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