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Can More Frequent Price Changes Lead to Price Inertia? Nonneutralities in a State-Dependent Pricing Context

John R. Conlon and Christina Y. Liu
International Economic Review
Vol. 38, No. 4 (Nov., 1997), pp. 893-914
DOI: 10.2307/2527221
Stable URL: http://www.jstor.org/stable/2527221
Page Count: 22
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Can More Frequent Price Changes Lead to Price Inertia? Nonneutralities in a State-Dependent Pricing Context
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Abstract

We present a generalized (s, S) state-dependent pricing model in which menus are changed, not just in response to price misalignment, but also in response to factors such as changing product mix. Our model generates aggregate price inertia, and so reverses an important earlier result on neutrality in state-dependent pricing contexts in more general settings than previous modifications. It also provides a compromise between state- and time-dependent rules, gives a glimpse at the dynamic implications of menu cost models, and reproduces two recent results: one on Phillips curve slopes, and one on asymmetric fluctuations.

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