Sticky information and sticky prices

Klenow, Peter J.; Willis, Jonathan L.

doi:10.1016/j.jmoneco.2007.06.003

Cited by 108 publications

(85 citation statements)

References 24 publications

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“…See the discussion of his paper in the next subsection. Knotek (2009) and Klenow and Willis (2007) also allow for continuous incorporation of partial information (about idiosyncratic shocks) into pricing decisions, in the context of menu-cost models. 8 This type of price-setting policies have also been used in the literature to analyze the consequences of indexation for the cost of disinflation (see Bonomo and Garcia, 1994 for price setting, and Jadresic, 2002, for wage setting).…”

Section: Other Papers With Information and Adjustment Costsmentioning

confidence: 99%

“…This is essentially the sticky-information assumption of Mankiw and Reis (2002). Models with menu costs and sticky information have been analyzed by Knotek (2009) and Klenow and Willis (2007).…”

Section: Random Information Arrivalmentioning

confidence: 99%

“…In the case of deterministic information arrival times, the inaction region becomes arbitrarily wide just prior to the information release, as the option value of waiting to make an informed decision about price adjustment becomes arbitrarily large. These specifications correspond to Knotek (2009) and Klenow and Willis (2007), who analyze menu-cost pricing in a sticky-information environment.…”

Section: Introductionmentioning

confidence: 99%

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State-Dependent Pricing under Infrequent Information: A Unified Framework

2010

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe characterize optimal state-dependent pricing rules under various forms of infrequent information. In all models, infrequent price changes arise from the existence of a lump-sum "menu cost." We entertain various alternatives for the source and nature of infrequent information. In two benchmark cases with continuously available information, optimal pricing rules are purely state-dependent. In contrast, in all environments with infrequent information, optimal pricing rules are both time-and state-dependent, characterized by "trigger strategies" that depend on the time elapsed since the last date when information was fully factored into the pricing decision. After considering the case in which information arrives infrequently for exogenous reasons, we address pricing problems in which gathering and processing information also entails a lump-sum cost. When the information and adjustment costs must be incurred simultaneously, the optimal pricing policy is a fixed-price time-dependent rule. When the costs are dissociated, the optimal rule features price stickiness and inattentiveness. Finally, we consider versions of the price-setting problems in which firms continuously entertain partial information. We characterize the optimal pricing rules and provide numerical solution algorithms and examples in a unified framework.

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Section: Other Papers With Information and Adjustment Costsmentioning

confidence: 99%

Section: Random Information Arrivalmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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State-Dependent Pricing under Infrequent Information: A Unified Framework

2010

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“…cash -save -to -downsize -to -want -t -don -Industry/Consumers -usa.com/Financial -www.foodnavigator 4 The notion of inattentive behavior that we study here is related to a similar notion studied, for example, in Mankiw and Reis (2002 , Ball, et al (2005), Reis (2006aReis ( , 2006bReis ( , 2009), Klenow and Willis (2007), and Knotek (2010), to rationally inattentive behavior as in Sims (2003), to absent minded behavior as in Ameriks, et al (2004), and to the notion of imperfect memory used by some game theorists. Our implementation of the notion, however, differs from the above.…”

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confidence: 95%

Shrinking Goods and Sticky Prices: Theory and Evidence

Snir

Lévy

2011

SSRN Journal

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Swan's (1970) theorem predicts that consumers should be indifferent between equivalent changes in goods' prices and quantities. Empirical evidence, however, suggests that consumers often respond differently to price increases and equivalent quantity decreases. We offer a possible explanation for this puzzle by constructing and empirically testing a model in which consumers face cognitive costs when processing goods' price and quantity information. The model is based on evidence from cognitive psychology literature, and explains consumers' decision whether or not to process goods' price and quantity information. We find that consumers are more likely to process goods' price and quantity information when markets are competitive. They are more likely to process goods' price information than goods' quantity information. During holiday periods, however, they are more likely to process goods' quantity information in comparison to other periods. Our findings explain why producers sometimes adjust goods' prices and sometimes goods' quantities. In addition, they predict variability in price adjustment costs over time and across economic conditions.

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“…particularly important by Klenow and Willis (2007) who find that price changes in the CPI reflect older information than would be predicted by a costless-flexible information environment.…”

Section: Resultsmentioning

confidence: 99%

Costly Information, Planning Complementarities and the Phillips Curve

Acharya

2014

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractStandard sticky information pricing models successfully capture the sluggish movement of aggregate prices in response to monetary policy shocks but fail at matching the magnitude and frequency of price changes at the micro level. This paper shows that in a setting where firms choose when to acquire costly information about different types of shocks, strategic complementarities in pricing generate planning complementarities. This results in firms optimally updating their information about monetary policy shocks less frequently than about idiosyncratic shocks. When calibrated to match frequent and large price changes observed in micro pricing data, the model is still capable of producing substantial non-neutralities. In addition, I use the model consistent Phillips curve and data from the Survey of Professional Forecasters to estimate the frequency at which firms update their information about monetary policy shocks. I find that the frequency of updating was higher in the 1970s compared to subsequent decades and hence conclude that monetary policy in the U.S. was relatively less effective prior to the 1980s.

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Sticky information and sticky prices

Cited by 108 publications

References 24 publications

State-Dependent Pricing under Infrequent Information: A Unified Framework

State-Dependent Pricing under Infrequent Information: A Unified Framework

Shrinking Goods and Sticky Prices: Theory and Evidence

Costly Information, Planning Complementarities and the Phillips Curve

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