Sticky Prices: A New Monetarist Approach

Allen Head (), Lucy Qian Liu (), Guido Menzio and Randall Wright

No 17520, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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 with other sticky-price models, money is neutral.

JEL-codes: E0 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-cba, nep-cis, nep-dge, nep-mac and nep-mon
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published as Allen Head & Lucy Qian Liu & Guido Menzio & Randall Wright, 2012. "Sticky Prices: A New Monetarist Approach," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 939-973, October.

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Related works:
Journal Article: STICKY PRICES: A NEW MONETARIST APPROACH (2012)
Working Paper: Sticky prices: a new monetarist approach (2011)
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