NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Inflexible Relative Prices and Price Level Inertia

Olivier J. Blanchard

NBER Working Paper No. 1147
Issued in June 1983
NBER Program(s):   EFG

A decrease in aggregate demand at given prices and wages decreases output and employment. The decrease in employment exerts downward pressure on real wages. The decrease in production exerts downward pressure on markups. With perfectly synchronized price and wage decisions, nominal wages and prices decrease instantaneously until equilibrium is reestablished at a lower price level and the initial relative prices. If, however, price and wage decisions are a synchronized, this process can not take place instantaneously but rather takes place over time. If real wages and markups are rather insensitive to shifts in demand, the process of adjustmentis slow, the effects of money on output are strong and lasting.The paper formalizes this intuitive argument and characterizes the implications of asynchronization for the joint behavior of relative and nominal prices.

download in pdf format
   (274 K)

email paper

This paper is available as PDF (274 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1147

Users who downloaded this paper also downloaded these:
Blanchard w0900 Price Asynchronization and Price Level Inertia
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us