Price Setting With Menu Cost for Multiproduct Firms
Fernando Alvarez and
Econometrica, 2014, vol. 82, issue 1, 89-135
We model the decisions of a multiproduct firm that faces a fixed “menu” cost: once it is paid, the firm can adjust the price of all its products. We characterize analytically the steady state firm's decisions in terms of the structural parameters: the variability of the flexible prices, the curvature of the profit function, the size of the menu cost, and the number of products sold. We provide expressions for the steady state frequency of adjustment, the hazard rate of price adjustments, and the size distribution of price changes, all in terms of the structural parameters. We study analytically the impulse response of aggregate prices and output to a monetary shock. The size of the output response and its duration both increase with the number of products; they more than double as the number of products goes from 1 to 10, quickly converging to the response of Taylor's staggered price model.
References: Add references at CitEc
Citations: View citations in EconPapers (33) Track citations by RSS feed
Downloads: (external link)
Working Paper: Price setting with menu cost for multi-product firms (2013)
Working Paper: Price setting with menu cost for multi-product firms (2012)
Working Paper: Price Setting with menu cost for Multi-product firms (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wly:emetrp:v:82:y:2014:i:1:p:89-135
Ordering information: This journal article can be ordered from
https://www.economet ... ordering-back-issues
Access Statistics for this article
Econometrica is currently edited by Daron Acemoglu
More articles in Econometrica from Econometric Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().