NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Imperfect Information and Staggered Price Setting

Laurence Ball, Stephen G. Cecchetti

NBER Working Paper No. 2201
Issued in April 1987
NBER Program(s):   ME

Many Keynesian macroeconomic models are based on the assumption that firms change prices at different times. This paper presents an explanation for this "staggered" price setting. We develop a model in which firms have imperfect knowledge of the current state of the economy and gain information by observing the prices set by others. This gives each firm an incentive to set its price shortly after as many firms as possible. Staggering can be the equilibrium outcome. In addition, the information gains can make staggering socially optimal even though it increases aggregate fluctuations.

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Document Object Identifier (DOI): 10.3386/w2201

Published: American Economic Review, Vol. 78, No. 5, December 1988, pp. 999-1018 citation courtesy of

 
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