TY  - JOUR
AU  - Ball,Laurence
AU  - Romer,David
TI  - The Equilibrium and Optimal Timing of Price Changes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2412
PY  - 1989
Y2  - December 1989
UR  - http://www.nber.org/papers/w2412
L1  - http://www.nber.org/papers/w2412.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 studies the welfare properties of the equilibrium timing of price changes. Staggered price-setting has the advantage that it permits rapid adjustment to firm-specific shocks but the disadvantage that it causes price level inertia and therefore increases aggregate fluctuations. Because each firm ignores its contribution to inertia, staggering can be a stable equilibrium even if it is highly inefficient. In addition, there can be multiple equilibria in the timing of price changes; indeed, whenever there is an inefficient staggered equilibrium, there is also an efficient equilibrium with synchronized price-setting.
ER  -