Working Paper: NBER ID: w2201
Authors: 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.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| imperfect information (D83) | staggered price setting (P22) |
| staggered price setting (P22) | firms set prices at different times (L11) |
| local and aggregate shocks (E19) | staggering can be socially optimal (H21) |
| staggering (Y60) | improved welfare (I30) |
| synchronization (C69) | Nash equilibrium (C72) |
| staggering (Y60) | price rigidity in the economy (E31) |