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:||Apr 1987|
|Publication status:||published as American Economic Review, Vol. 78, No. 5, December 1988, pp. 999-1018|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Laurence Ball & David Romer, 1989.
"The Equilibrium and Optimal Timing of Price Changes,"
Review of Economic Studies,
Oxford University Press, vol. 56(2), pages 179-198.
- 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 Ball & David Romer, 1989. "Are Prices Too Sticky?," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 507-524.
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