Equilibrium Price Dispersion and Rigidity: A New Monetarist Approach
Why do some sellers set prices in nominal terms that do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption. Here it is a result. We use search theory, with two consequences: prices are set in dollars since money is the medium of exchange; and equilibrium implies a nondegenerate price distribution. When money increases, some sellers keep prices constant, earning less per unit but making it up on volume, so profit is unaffected. The model is consistent with the micro data. But, in contrast with other sticky-price models, money is neutral.
|Date of creation:||03 Sep 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://economics.sas.upenn.edu/pier
More information through EDIRC
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.:
- Boragan Aruoba, S. & Rocheteau, Guillaume & Waller, Christopher, 2007.
"Bargaining and the value of money,"
Journal of Monetary Economics,
Elsevier, vol. 54(8), pages 2636-2655, November.
When requesting a correction, please mention this item's handle: RePEc:pen:papers:10-034. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dolly Guarini)
If references are entirely missing, you can add them using this form.