Nominal shocks in monopolistically competitive markets: An experiment

Douglas Davis and Oleg Korenok

Journal of Monetary Economics, 2011, vol. 58, issue 6, 578-589

Abstract: A market experiment examines the capacity of price and information frictions to explain real responses to nominal price shocks. Results indicate that both price and information frictions impede the response to a nominal shock, as predicted by the standard dynamic adjustment models. Observed adjustment delays, however, far exceed predicted levels. Results of a pair of subsequent treatments indicate that a combination of announcing the shock privately to all sellers (rather than publicly) and a failure of many sellers to best respond to their expectations explains the observed adjustment inertia.

Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:58:y:2011:i:6:p:578-589

DOI: 10.1016/j.jmoneco.2011.11.001

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