Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices

Michael Davis and James Hamilton

No 9741, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The menu-cost interpretation of sticky prices implies that the probability of a price change should depend on the past history of prices and fundamentals only through the gap between the current price and the frictionless price. We find that this prediction is broadly consistent with the behavior of 9 Philadelphia gasoline wholesalers. We nevertheless reject the menu-cost model as a literal description of these firms' behavior, arguing instead that price stickiness arises from strategic considerations of how customers and competitors will react to price changes.

JEL-codes: E3 (search for similar items in EconPapers)
Date: 2003-06
Note: EFG EEE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Published as Davis, Michael C. and James D. Hamilton. "Why Are Prices Sticky? The Dynamics Of Wholesale Gasoline Prices," Journal of Money, Credit and Banking, 2004, v36(1,Feb), 17-37.

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