A Simple Model of Price Dispersion and Price Rigidity
There are two facts about the world that we take as given: First the "law of one price" is false -- one can find many different prices for what appears to be, beyond reasonable doubt, the same good. Second, prices are set in nominal terms and appear, beyond reasonable doubt, to be sticky -- some sellers keep their prices rigid when the aggregate price level increases. We shown these phenomena emerge naturally together in a search model. In contrast to theories that assume nominal price rigidities, when they are endogenous, they cannot be exploited by monetary policy, even though money is not neutral. The object of this study is to explain the above in a tractable model of money and search.
Year of publication: |
2014
|
---|---|
Authors: | Wright, Randall ; Menzio, Guido ; Burdett, Kenneth |
Institutions: | Society for Economic Dynamics - SED |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Wright, Randall, (2010)
-
Inflation and Unemployment in the Long Run
Wright, Randall, (2008)
-
Inflation and unemployment: Lagos-Wright meets Mortensen-Pissarides
Wright, Randall, (2007)
- More ...