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Imperfect Information and Staggered Price Setting

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  • Laurence Ball
  • Stephen G. Cecchetti

Abstract

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. We 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 as many firms as possible. Staggering can be the equilibrium outcome. In addition, the information gains can make staggering socially optimal even though it increases aggregate fluctuations.

Suggested Citation

  • Laurence Ball & Stephen G. Cecchetti, 1987. "Imperfect Information and Staggered Price Setting," NBER Working Papers 2201, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2201
    Note: ME
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    References listed on IDEAS

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    1. Laurence Ball & David Romer, 1989. "The Equilibrium and Optimal Timing of Price Changes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(2), pages 179-198.
    2. Laurence Ball & David Romer, 1989. "Are Prices Too Sticky?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(3), pages 507-524.
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