Year: 2007
Type: book
Abstract: There is much evidence that price-adjustment frequencies vary widely across industries. This paper shows that inflation persistence is lower with heterogeneity in price stickiness than without it, taking as given the degree of persistence in variables affecting inflation. Differences in the frequency of price adjustment mean that the pool of firms which responds to any macroeconomic shock is unrepresentative, containing a disproportionately large number of firms from industries with more flexible prices. Consequently, this group of firms is more likely to reverse any initial price change after a shock has dissipated, making inflation persistence much harder to explain.
Author: Kevin D. Sheedy
Institution: London School of Economics and Political Science
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2168545909