Author: Fernando Merino de LucasPublisher:
ISBN:
Category :
Languages : es
Pages : 22
Book Description
Price adjustment costs and adjustment frequency
Author: Fernando Merino de LucasPublisher:
ISBN:
Category :
Languages : es
Pages : 22
Book Description
Optimal Pricing, Inflation, and the Cost of Price Adjustment
Author: Eytan SheshinskiPublisher: MIT Press
ISBN: 9780262193320
Category : Business & Economics
Languages : en
Pages : 546
Book Description
These collected articles constitute what is perhaps the definitive study of pricing models under inflation, providing a solid basis for further research on this elusive question. What are the real effects of inflation? These collected articles constitute what is perhaps the definitive study of pricing models under inflation, providing a solid basis for further research on this elusive question. Covering a broad range of theory and applications by well-known microeconomists, the eighteen contributions evaluate the effects of inflation on aggregate output and on welfare and reveal the scope of recent efforts to explicitly incorporate frictions in economic models. A basic building block common to most of the essays in this volume is the observation that individual firms change nominal prices intermittently. The frequency and size of nominal price changes are influenced by the cost of price adjustment and changes in the economic environment, production costs, market demand, market structure, and most important, inflation. Thus the degree of nominal rigidity is influenced by the economic environment, and in a dynamic context. Two introductory essays survey the empirical studies of pricing policies by individual firms and the theoretical efforts to integrate the nominal rigidities at the micro level into macro relationships. The essays that follow treat the general problem of optimal dynamic adjustment in the presence of convex costs of adjustment, include applications of the inventory models to the case of nominal price adjustment by an individual firm, address the question of aggregation, introduce active search by consumers, and provide empirical analysis of nominal price rigidities.
Frequency and Costs of Individual Price Adjustment
Author: Publisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
The Federal Reserve Bank of Richmond presents the full text of an article entitled "The Frequency and Costs of Individual Price Adjustment," by Alexander L. Wolman. The article was published in the Fall 2000 issue of "Economic Quarterly." Wolman discusses the adjustment of nominal prices for individual goods to economic conditions.
Frequency of Price Adjustment and Pass-Through
Author: Gita GopinathPublisher:
ISBN:
Category :
Languages : en
Pages : 53
Book Description
A common finding across empirical studies of price adjustment is that there is large heterogeneity in the frequency of price adjustment. However, there is little evidence of how distant prices are from the desired flexible price. Without this evidence, it is difficult to discern what the frequency measure implies for the transmission of shocks or to understand why some firms adjust more frequently than others. We exploit the open economy environment, which provides a well-identified and sizeable cost shock namely the exchange rate shock to shed light on these questions. First, we empirically document that high frequency adjusters have a long-run pass-through that is at least twice as high as low frequency adjusters in the data. Next, we show theoretically that long-run pass-through is determined by the same primitives that shape the curvature of the profit function and, hence, also affect frequency. In an environment with variable mark-ups or variable marginal costs, theory predicts a positive relation between frequency and pass-through, as documented in the data. Consequently, estimates of long-run pass-through shed light on the determinants of the duration of prices. The standard workhorse model with constant elasticity of demand and Calvo or state dependent pricing generates long-run pass-through that is uncorrelated with frequency, contrary to the data. Lastly, we calibrate a dynamic menu-cost model and show that variable mark-ups chosen to match the variation in pass-through in the data can generate substantial variation in price duration, equivalent to one third of the observed variation in the data.
The Frequency of Price Adjustment and New Keynesian Business Cycle Dynamics
Author: Richard DennisPublisher:
ISBN:
Category :
Languages : en
Pages : 43
Book Description
The Calvo pricing model that lies at the heart of many New Keynesian business cycle models has been roundly criticized for being inconsistent both with time series data on inflation and with micro-data on the frequency of price changes. In this paper we show that a modified version of the Gali and Gertler (1999) model, which allows for quot;rule-of-thumbquot; price setters, and whose structure can be interpreted in terms of menu costs and information gathering/processing costs, largely resolves both criticisms. Moreover, the resulting Phillips curve shares the explanatory power of the partial-indexation model and dominates the full-indexation model and the Calvo model. Estimating a small-scale New Keynesian business cycle model, our results indicate that the share of firms that change prices each quarter is just over 60 percent, broadly in line with the Bils and Klenow (2004) study of Bureau of Labor Statistics price data. Reflecting the importance of information gathering/processing costs, we find that most firms that change prices are rule-of-thumb price setters. Finally, compared to specifications containing either the Calvo model or the full-indexation model, the data provide much greater support for the Gali-Gertler model.
Price Adjustment Costs and the Phillips Curve
Author: Timur KuranPrice Adjustment Under Inflation, and Rules of Trade
Author: Timur KuranPublisher:
ISBN:
Category : Industrial management
Languages : en
Pages : 326
Book Description
The Size, Frequency and Synchronization of Price Adjustment
Author: Attila RátfaiPublisher:
ISBN:
Category : Elasticity (Economics)
Languages : en
Pages : 38
Book Description
Optimal Price Adjustment with Time-dependent Costs
Author: Joshua AizenmanPublisher:
ISBN:
Category : Prices
Languages : en
Pages : 26
Book Description
The purpose of this paper is to analyze an optimal pricing rule for the case in which the costs of price adjustment are time dependent, and where those costs depend positively on the magnitude of the percentage price change. By means of discrete time model, it is shown that the optimal response to the problem under consideration is to pre-set prices for each period at the end of the previous period. Within the period prices will adjust if the unexpected shock exceeds a threshold level. In such a case the new price is established at a level that is a weighted average of the pre-set level and of the equilibrium level that would have obtained in the absence of costs of contemporaneous price adjustment. Under certain conditions, which are derived in the paper, higher volatility of unexpected inflation might reduce relative price volatility.
Asking About Prices
Author: Alan BlinderPublisher: Russell Sage Foundation
ISBN: 1610440684
Category : Business & Economics
Languages : en
Pages : 412
Book Description
Why do consumer prices and wages adjust so slowly to changes in market conditions? The rigidity or stickiness of price setting in business is central to Keynesian economic theory and a key to understanding how monetary policy works, yet economists have made little headway in determining why it occurs. Asking About Prices offers a groundbreaking empirical approach to a puzzle for which theories abound but facts are scarce. Leading economist Alan Blinder, along with co-authors Elie Canetti, David Lebow, and Jeremy B. Rudd, interviewed a national, multi-industry sample of 200 CEOs, company heads, and other corporate price setters to test the validity of twelve prominent theories of price stickiness. Using everyday language and pertinent scenarios, the carefully designed survey asked decisionmakers how prominently these theoretical concerns entered into their own attitudes and thought processes. Do businesses tend to view the costs of changing prices as prohibitive? Do they worry that lower prices will be equated with poorer quality goods? Are firms more likely to try alternate strategies to changing prices, such as warehousing excess inventory or improving their quality of service? To what extent are prices held in place by contractual agreements, or by invisible handshakes? Asking About Prices offers a gold mine of previously unavailable information. It affirms the widespread presence of price stickiness in American industry, and offers the only available guide to such business details as what fraction of goods are sold by fixed price contract, how often transactions involve repeat customers, and how and when firms review their prices. Some results are surprising: contrary to popular wisdom, prices do not increase more easily than they decrease, and firms do not appear to practice anticipatory pricing, even when they can foresee cost increases. Asking About Prices also offers a chapter-by-chapter review of the survey findings for each of the twelve theories of price stickiness. The authors determine which theories are most popular with actual price setters, how practices vary within different business sectors, across firms of different sizes, and so on. They also direct economists' attention toward a rationale for price stickiness that does not stem from conventional theory, namely a strong reluctance by firms to antagonize or inconvenience their customers. By illuminating how company executives actually think about price setting, Asking About Prices provides an elegant model of a valuable new approach to conducting economic research.