AEAweb: Journal Article Full-Text Access
Note to Institutional Subscribers: If you normally access AEAweb journal content via your university or firm's subscription and receive this page, please click
here. The most likely causes of this are a recently changed IP address, a new subscription, or the renewal of a lapsed institutional subscription. This page will stop appearing on the next synchronisation of the document delivery and authentication systems.
You may also click here for pay-per-view, Athens login and other access options .
AEA Members, please click the button below to access the login form:
Saint-Paul, Gilles. 2005. "Some Evolutionary Foundations for Price Level Rigidity."
,
95(3): 765-779.
Show Article Details
DOI: 10.1257/0002828054201251
Abstract:This paper shows that price rigidity evolves in an economy populated by imperfectly rational agents who experiment with alternative rules of thumb. In the model, firms must set their prices in face of aggregate demand shocks. Their payoff depends on the level of aggregate demand, as well as on their own price and their "neighbor's" price. The latter assumption captures local interactions. Despite the fact that the rational expectations equilibrium (REE) is characterized by a simple pricing rule that firms can easily adopt, the economy does not converge to the REE for all parameter values. When the volatility of monetary innovations is low and interactions among firms are high, the aggregate price level exhibits rigidity, in that it does not fully react to contemporaneous aggregate demand shocks. We discuss the role of the nature of experimentation, and of path dependence driven by interactions, in explaining these results.
Additional links:
Download Data Set
Authors:
Saint-Paul, Gilles
JEL Classifications:
:
None
If you are an AEA member and do not have an AEAweb login, please
click here.
If you would like to become an AEA member, please see our
membership page.
If you arrived at this page via a journal article link, you will be redirected to the pdf after successful login.
If your first login attempt fails, and you have recently signed up for access or have recently changed your password, you may need to wait a few moments and try again.
Please contact us at
notify@aeaweb.org with any problems or questions.
Contents of Current Issues
May 2013 AER
Spring 2013 JEP
May 2013 AEJ: Policy
May 2013 AEJ: Micro
April 2013 AEJ: Macro
April 2013 AEJ: Applied
March 2013 JEL
Virtual Field Journals
In the News:
The Huffington Post reports on a study addressing the influence of lifestyle factors on shrinking height in the elderly published in the April issue of AEJ: Applied Economics.
Michael Frakes' (Cornell Law School) article on medical liability standards from the February issue of the American Economic Review was discussed as part of a Bloomberg opinion piece on medical malpractice.
Slate Magazine recently discussed former AEA president, George Akerlof's classic behavioral research and a 2012 American Economic Review study conducted by German and Swiss researchers to explore how gifting can motivate some employees more than cash incentives do in the workplace.
Contact Us
