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Can More Frequent Price Changes Lead to Price Inertia? Nonneutralities in a State-Dependent Pricing Context

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  • Conlon, John R
  • Liu, Christina Y

Abstract

The authors present a generalized (s,S) state-dependent pricing model in which menus are changed, not just in response to price misalignment but also in response to factors such as changing product mix. Their model generates aggregate price inertia, and so reverses an important earlier result on neutrality in state-dependent pricing contexts in more general settings than previous modifications. It also provides a compromise between state- and time-dependent rules, gives a glimpse at the dynamic implications of menu cost models, and reproduces two recent results: one on Phillips curve slopes and one on asymmetric fluctuations. Copyright 1997 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Conlon, John R & Liu, Christina Y, 1997. "Can More Frequent Price Changes Lead to Price Inertia? Nonneutralities in a State-Dependent Pricing Context," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 893-914, November.
    • Handle: RePEc:ier:iecrev:v:38:y:1997:i:4:p:893-914
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    Cited by:

    1. Robert Amano & Donald Coletti & Tiff Macklem, 1998. "Monetary rules when economic behaviour changes," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    2. Marco Bonomo & Carlos Carvalho, 2010. "Imperfectly Credible Disinflation under Endogenous Time‐Dependent Pricing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 799-831, August.
    3. Bonomo, Marco, 2000. "Are One-Sided S,s Rules Useful Proxies For Optimal Pricing Rules?," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 20(1), May.
    4. Andrew T. Young & Alexander K. Blue, 2007. "Retail prices during a change in monetary regimes: evidence from Sears, Roebuck catalogs, 1938-1951," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 763-775.
    5. Sen Tinni & Conlon John R, 2010. "Price Dynamics and Asymmetric Business Cycles under Mixed State and Time Dependent Pricing Rules," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-28, April.
    6. Bonomo, Marco Antônio Cesar & Carvalho, Carlos Viana de, 2003. "Endogenous time-dependent rules and the costs of disinflation with imperfect credibility," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 505, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    7. Taylor, John B., 1999. "Staggered price and wage setting in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 15, pages 1009-1050, Elsevier.
    8. Kevin X. D. Huang & Jonathan L. Willis, 2018. "Sectoral Interactions and Monetary Policy under Costly Price Adjustments," Annals of Economics and Finance, Society for AEF, vol. 19(2), pages 337-374, November.

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