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Logit price dynamics

Author

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  • Costain, James
  • Nakov, Anton

Abstract

We model retail price stickiness as the result of errors due to costly decision-making. Under our assumed cost function for the precision of choice, the timing of price adjustments and the prices firms set are both logit random variables. Errors in the prices firms set help explain micro JEL Classification: E31, D81, C73

Suggested Citation

  • Costain, James & Nakov, Anton, 2014. "Logit price dynamics," Working Paper Series 1693, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20141693
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:moneco:v:91:y:2017:i:c:p:88-103 is not listed on IDEAS
    2. Costain, James & Nakov, Anton, 2015. "Precautionary price stickiness," Journal of Economic Dynamics and Control, Elsevier, vol. 58(C), pages 218-234.
    3. Russell W. Cooper & Immo Schott, 2013. "Capital Reallocation and Aggregate Productivity," NBER Working Papers 19715, National Bureau of Economic Research, Inc.
    4. Khaw, Mel Win & Stevens, Luminita & Woodford, Michael, 2017. "Discrete adjustment to a changing environment: Experimental evidence," Journal of Monetary Economics, Elsevier, vol. 91(C), pages 88-103.

    More about this item

    Keywords

    information-constrained pricing; logit equilibrium; near rationality; nominal rigidity; state-dependent pricing;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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