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. 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.
|Date of creation:||Mar 1987|
|Date of revision:|
|Publication status:||published as American Economic Review, Vol. 78, No. 5, December 1988, pp. 999-1018|
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- Ball, Laurence & Romer, David, 1989.
"Are Prices Too Sticky?,"
The Quarterly Journal of Economics,
MIT Press, vol. 104(3), pages 507-24, August.
- Laurence Ball & David Romer, 1987.
"The Equilibrium and Optimal Timing of Price Changes,"
NBER Working Papers
2432, National Bureau of Economic Research, Inc.
- 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 2412, National Bureau of Economic Research, Inc.
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