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| Author: | Ball, L. Romer, D. |
| Title: | The equilibrium and optimal timing of price changes. |
| Journal: | Review of Economic Studies
1989 : APR, VOL. 56:186, p. 179-198 |
| Index terms: | FIRM (THEORY OF) PRICE LEVEL EQUILIBRIUM ANALYSIS |
| Language: | eng |
| Abstract: | The welfare properties of the equilibrium timing of price changes are studied. Staggered price setting has the advantage that it permits rapid adjustment to firm-specific shocks, but the disadvantages, namely unwanted fluctuations in relative price and price level inertia, can increase aggregate fluctuations. Because each firm ignores its contribution to these problems, staggering can be a stable equilibrium even if highly inefficient. In addition, there can be multiple equilibrium, there is also an efficient equilibrium with synchronized price setting. The existence of multiple equilibria implies that regulation could be temporary but synchronization, once achieved, would be self-sustaining. |
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