The frequency and costs of individual price adjustment

Abstract

AbstractHow often do the nominal prices of individual goods change? What is the nature of costs of price adjustment? How big are these costs? Answering these questions may be important for constructing macroeconomic models that are useful for monetary policy analysis. The empirical literature reveals that many prices do change infrequently, in part because of physical costs of price adjustment. However, infrequent price adjustment also seems to be related to costs of decision making, to relationships between buyers and sellers, and to strategic behavior among sellers, all in ways that are not yet well understood. Copyright © 2007 John Wiley & Sons, Ltd.