E42 Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems

Sticky Prices: A New Monetarist Approach

JEL code(s)	E31 Price Level; Inflation; Deflation E42 Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems E52 Monetary Policy
Authors:	Allen Head Lucy Qian Liu Guido Menzio Randall Wright
Date published:	January 16, 2012
Abstract:	Why do some sellers set nominal prices that apparently do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption; here it is a result. We use search theory, with two consequences: prices are set in dollars, since money is the medium of exchange; and equilibrium implies a nondegenerate price distribution. When the money supply increases, some sellers may keep prices constant, earning less per unit but making it up on volume so profit stays constant. The calibrated model matches price-change data well. But, in contrast to typical sticky-price models, money is neutral.
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JEL code(s)	D01 Microeconomic Behavior: Underlying Principles D11 Consumer Economics: Theory D21 Firm Behavior D40 Market Structure and Pricing: General E31 Price Level; Inflation; Deflation E42 Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems E50 Monetary Policy, Central Banking, and the Supply of Money and Credit: General E52 Monetary Policy L11 Production, Pricing, and Market Structure; Size Distribution of Firms L16 Industrial Organization and Macroeconomic Industrial Structure; Industrial Price Indices L20 Firm Objectives, Organization, and Behavior: General M21 Business Economics M31 Marketing
Keywords	Cognitive Costs of Attention, Information Processing Cost, Price Adjustment, Quantity Adjustment, Rational Inattention, Rigid Prices, Sticky Prices
Authors:	Daniel Levy
Date published:	March 13, 2011
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JEL code(s)	E42 Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems F36 Financial Aspects of Economic Integration F42 International Policy Coordination and Transmission
Keywords	Central and Eastern Europe, currency union, echange rate variability, euroization, job creation
Series Number:	EABCN/CEPR Discussion Paper 12/2004
Authors:	Ansgar Belke Leo Kaas Ralph Setzer
Date published:	December 1, 2004
Abstract:	According to the traditional 'optimum currency area' approach, the case for adopting a common currency is stronger if the countries are subject to relatively similar output shocks. This Paper takes a different approach and highlights the fact that high exchange rate volatility may as well signal high costs for labour markets. The impact of exchange rate volatility on labour markets in the CEECs is analysed, finding that volatility vis-à-vis the euro significantly lowers employment growth and raises the unemployment rate. Hence, the elimination of exchange rate volatility can be considered equally important for labour markets as a removal of employment protection legislation.
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