Optimal Pricing, Inflation, and the Cost of Price Adjustment

by Sheshinski, Eytan; Weiss, Yoram

• ISBN13: 9780262193320
• ISBN10: 0262193329
• Format: Hardcover
• Copyright: 1993-06-16
• Publisher: Mit Pr

Summary

What are the real effects of inflation? These collected articles constitute what is perhaps the definitive study of pricing models under inflation, providing a solid basis for further research on this elusive question. Covering a broad range of theory and applications by well-known microeconomists, the eighteen contributions evaluate the effects of inflation on aggregate output and on welfare and reveal the scope of recent efforts to explicitly incorporate frictions in economic models. A basic building block common to most of the essays in this volume is the observation that individual firms change nominal prices intermittently. The frequency and size of nominal price changes are influenced by the cost of price adjustment and changes in the economic environment, production costs, market demand, market structure, and most important, inflation. Thus the degree of nominal rigidity is influenced by the economic environment, and in a dynamic context. Two introductory essays survey the empirical studies of pricing policies by individual firms and the theoretical efforts to integrate the nominal rigidities at the micro level into macro relationships. The essays that follow treat the general problem of optimal dynamic adjustment in the presence of convex costs of adjustment, include applications of the inventory models to the case of nominal price adjustment by an individual firm, address the question of aggregation, introduce active search by consumers, and provide empirical analysis of nominal price rigidities. Eytan Sheshinski is Professor of Economics at Hebrew University in Jerusalem. Yoram Weiss is Professor of Economics at Tel Aviv University.

Table of Contents

Preface
Contributors
Nominal Rigidities: Microeconomic Evidence and Macroeconomic Implications	p. 1
Inflation and Price Adjustment: A Survey of Findings from Micro-Data	p. 3
Individual Inertia and Aggregate Dynamics	p. 19
Tools of Analysis: Mathematical Theory of Inventory Control	p. 47
The Optimality of (S,s) Policies in the Dynamic Inventory Problem	p. 49
Quasi-Variational Inequalities and Impulse Control	p. 57
A Simplified Treatment of the Theory of Optimal Regulation of Brownian Motion	p. 97
Optimal Pricing Policies Under Inflation	p. 115
Inflation and Costs of Price Adjustment	p. 117
Optimum Pricing Policy under Stochastic Inflation	p. 143
Staggered and Synchronized Price Policies under Inflation: The Multi-product Monopoly Case	p. 169
Aggregation and the Effects of Money on Aggregate Output	p. 215
Menu Costs and the Neutrality of Money	p. 217
Dynamic (S,s) Economies	p. 241
State-Dependent Pricing and the Dynamics of Money and Output	p. 277
Search and the Welfare Costs of Inflation	p. 303
Search, Price Setting, and Inflation	p. 305
Inflation and Efficiency in Search Markets	p. 341
Search, Sticky Prices, and Inflation	p. 385
Pricing Policies Under Inflation: The Empirical Evidence	p. 407
Why Are Prices Sticky? Preliminary Results from an Interview Study	p. 409
The Frequency of Price Adjustment: A Study of Newsstand Prices of Magazines	p. 423
The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data	p. 445
Inflation and Relative Prices: Evidence from Argentina	p. 485
Index	p. 513
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