EconPapers    
Economics at your fingertips  
 

Price Dispersion, Private Uncertainty, and Endogenous Nominal Rigidities

Gaetano Gaballo

Working papers from Banque de France

Abstract: This paper shows that when agents learn from prices, large private uncertainty may result from a small amount of heterogeneity. As in a Phelps-Lucas island model, final producers look at the prices of their local inputs to infer aggregate conditions. However, market linkages between islands make the informativeness of local prices endogenous to general equilibrium relations. In this context, I show that a vanishingly small heterogeneity in local conditions is enough to generate an equilibrium in which prices are rigid to aggregate shocks and transmit only partial information. I use this insight as a microfoundation for price rigidity in an otherwise frictionless monetary model and show that even a tiny amount of dispersion in fundamentals can lead to large non-neutrality of money.

Keywords: learning from prices; expectational coordination; dispersed information. (search for similar items in EconPapers)
JEL-codes: D82 D83 E3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... /documents/wp653.pdf (application/pdf)

Related works:
Journal Article: Price Dispersion, Private Uncertainty, and Endogenous Nominal Rigidities (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:653

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().

 
Page updated 2019-10-22
Handle: RePEc:bfr:banfra:653