Imperfect information and staggered price setting
Many Keynesian macroeconomic models are based on the assumption that firms change prices at different times. This paper presents an explanation for this "staggered" price setting. The authors develop a model in which firms have imperfect knowledge of the current state of the economy and gain information by observing the prices set by others. This gives each firm an incentive to set its price shortly after other firms set theirs. Staggering can be the equilibrium outcome. In addition, the information gains can make staggering socially optimal even though it increases aggregate fluctuations. Copyright 1988 by American Economic Association.
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|Date of creation:||1986|
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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.:
- Ball, Laurence & Romer, David, 1989.
"The Equilibrium and Optimal Timing of Price Changes,"
Review of Economic Studies,
Wiley Blackwell, vol. 56(2), pages 179-98, April.
- Laurence Ball & David Romer, 1987. "The Equilibrium and Optimal Timing of Price Changes," NBER Working Papers 2432, National Bureau of Economic Research, Inc.
- Laurence Ball & David Romer, 1987. "The Equilibrium and Optimal Timing of Price Changes," NBER Working Papers 2412, National Bureau of Economic Research, Inc.
- Laurence M. Ball & David Romer, 1987.
"Are Prices Too Sticky?,"
NBER Working Papers
2171, National Bureau of Economic Research, Inc.
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