Market Power, Price Adjustment, and Inflation

Allen Head (), Alok Kumar and Beverly Lapham

No 273565, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: Endogenous fluctuations in mark-ups driven by changes in consumers’ search intensity are studied in a monetary search economy. These fluctuations in market power determine the extent to which real and nominal prices adjust to shocks to productivity and the money growth rate in the absence of costs or temporal restrictions on sellers’ ability to change prices. A calibrated version of the economy is consistent with several empirical regularities documented in the literatures on exchange rate pass-through and the cyclical properties of mark-ups. In particular, both the pass-through of cost movements to real and nominal prices and the adjustment of nominal prices to changes in the money growth rate are incomplete. Also, mark-up fluctuations may be either pro- or countercyclical depending on their source. Furthermore, a higher average rate of inflation results in both a lower average mark-up and increasing sensitivity of prices to fluctuations in either productivity or money growth.

Keywords: Demand and Price Analysis; Financial Economics (search for similar items in EconPapers)
Pages: 38
Date: 2006-01
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Related works:
Journal Article: MARKET POWER, PRICE ADJUSTMENT, AND INFLATION (2010)
Working Paper: Market Power, Price Adjustment, And Inflation (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:273565

DOI: 10.22004/ag.econ.273565

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