Year: 2009
Type: article
Abstract: Macroeconomic models of business cycles rely on the assumption that firms adjust prices infrequently to generate the short‐run non‐neutrality of money documented by the monetary transmission literature. They posit different mechanisms to generate price stickiness, with correspondingly different implications for inflation dynamics. Using an autoregressive conditional binomial model, we test which mechanism is most consistent with the pattern of price adjustment found in daily wholesale gasoline price data. Our results lead us to reject menu costs and information‐processing delays but suggest that strategic considerations related to the idea of ‘fair pricing’ play an important role in accounting for price stickiness. Copyright © 2009 John Wiley & Sons, Ltd.
Source: Journal of Applied Econometrics
DOI: 10.1002/jae.1115
Authors: Christopher Douglas, Ana María Herrera
Institutions: University of Michigan–Flint, Wayne State University
Language: English
Domain: Social Sciences
Open Access status: bronze
Funders: Emory University, Harvard Kennedy School
OpenAlex ID: W2139143260