The Equilibrium and Optimal Timing of Price Changes / Laurence Ball, David Romer.

By:

Ball, Laurence

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w2412.Publication details: Cambridge, Mass. National Bureau of Economic Research 1987.Description: 1 online resource: illustrations (black and white)Online resources:

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Abstract: This paper studies the welfare properties of the equilibrium timing of price changes. Staggered price-setting has the advantage that it permits rapid adjustment to firm-specific shocks but the disadvantage that it causes price level inertia and therefore increases aggregate fluctuations. Because each firm ignores its contribution to inertia, staggering can be a stable equilibrium even if it is highly inefficient. In addition, there can be multiple equilibria in the timing of price changes; indeed, whenever there is an inefficient staggered equilibrium, there is also an efficient equilibrium with synchronized price-setting.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w2412 (Browse shelf(Opens below))	Not For Loan

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October 1987.

This paper studies the welfare properties of the equilibrium timing of price changes. Staggered price-setting has the advantage that it permits rapid adjustment to firm-specific shocks but the disadvantage that it causes price level inertia and therefore increases aggregate fluctuations. Because each firm ignores its contribution to inertia, staggering can be a stable equilibrium even if it is highly inefficient. In addition, there can be multiple equilibria in the timing of price changes; indeed, whenever there is an inefficient staggered equilibrium, there is also an efficient equilibrium with synchronized price-setting.