TY  - JOUR
AU  - Ball,Laurence M.
AU  - Romer,David
TI  - Are Prices Too Sticky?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2171
PY  - 1989
Y2  - October 1989
UR  - http://www.nber.org/papers/w2171
L1  - http://www.nber.org/papers/w2171.pdf
N1  - Author contact info:
Laurence M. Ball
Department of Economics
Johns Hopkins University
Baltimore, MD 21218
Tel: 410/516-7605
Fax: 410/516-7600
E-Mail: lball@jhu.edu

David H. Romer
Department of Economics
University of California
Berkeley, CA 94720-3880
E-Mail: dromer@econ.berkeley.edu
AB  - This paper shows that small costs of changing nominal prices can lead to rigidities that cause highly inefficient fluctuations in real variables. As a result, aggregate demand stabilization can be very desirable even though the frictions that cause fluctuations in aggregate demand to have real effects are slight. Inefficient price rigidity arises because rigidity has a negative externality: rigidity in one firm's price increases the variability of real aggregate demand, which hurts all firms. The externality can be arbitrarily large relative to the private costs of rigidity.
ER  -