Imperfect Information and Staggered Price Setting

Laurence Ball and Stephen Cecchetti

No 2201, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many Keynesian macroeconomic models are based on the assumption that firms change prices at different times. This paper presents an explanation for this "staggered" price setting. We develop a model in which firms have imperfect knowledge of the current state of the economy and gain information by observing the prices set by others. This gives each firm an incentive to set its price shortly after as many firms as possible. Staggering can be the equilibrium outcome. In addition, the information gains can make staggering socially optimal even though it increases aggregate fluctuations.

Date: 1987-04
Note: ME
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Citations: View citations in EconPapers (3)

Published as American Economic Review, Vol. 78, No. 5, December 1988, pp. 999-1018

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Journal Article: Imperfect Information and Staggered Price Setting (1988)
Working Paper: Imperfect information and staggered price setting (1986)
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