TY - JOUR
T1 - Sticky prices
T2 - A new monetarist approach
AU - Head, Allen
AU - Liu, Lucy Qian
AU - Menzio, Guido
AU - Wright, Randall
PY - 2012/10
Y1 - 2012/10
N2 - Why do some sellers set nominal prices that apparently 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 the money supply increases, some sellers may keep prices constant, earning less per unit but making it up on volume so profit stays constant. The calibrated model matches price-change data well. But, in contrast to typical sticky-price models, money is neutral.
AB - Why do some sellers set nominal prices that apparently 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 the money supply increases, some sellers may keep prices constant, earning less per unit but making it up on volume so profit stays constant. The calibrated model matches price-change data well. But, in contrast to typical sticky-price models, money is neutral.
UR - http://www.scopus.com/inward/record.url?scp=84865994481&partnerID=8YFLogxK
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U2 - 10.1111/j.1542-4774.2012.01081.x
DO - 10.1111/j.1542-4774.2012.01081.x
M3 - Article
AN - SCOPUS:84865994481
SN - 1542-4766
VL - 10
SP - 939
EP - 973
JO - Journal of the European Economic Association
JF - Journal of the European Economic Association
IS - 5
ER -