Evidence on price adjustment costs in U.S. manufacturing industry
This paper investigates the degree of rigidity in prices of manufactured products in the United States, conditional on labor costs. The author extends Julio J. Rotemberg's model of quadratic price-adjustment costs and finds that prices are costly to adjust: after a year, about 40 percent of adjustment remains to be completed for aggregate manufacturing, while for some industries the adjustment is twice as slow. But manufacturing prices are less sluggish than prices in the U.S. economy as a whole. Thus, nominal rigidity in other markets, such as those for services or labor, may be important. Copyright 1992 by Oxford University Press.
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