In Search of Price Rigidities
Author: Jacques Morisset
Publisher: World Bank Publications
Published: 1995
Total Pages: 36
ISBN-13:
DOWNLOAD EBOOKRead and Download eBook Full
Author: Jacques Morisset
Publisher: World Bank Publications
Published: 1995
Total Pages: 36
ISBN-13:
DOWNLOAD EBOOKAuthor: Cesar Revoredo
Publisher:
Published: 1999
Total Pages:
ISBN-13:
DOWNLOAD EBOOKDecember 1995 Monetary and exchange rate policies have different effects on relative prices among economic sectors -- and thus significantly influence the real side of the economy. The hypothesis that the price adjustment to nominal shocks is instantaneous has been part of the monetarist approach explaining the inflationary process in Argentina. But Morisset and Revoredo argue that monetary and exchange rate policies have had different effects on relative prices and thus have a significant influence on the real side of the economy. The existence of rigidities has prevented full and instantaneous price adjustments. Recent work on inflation in imperfectly competitive markets explains rigidities as a consequence of firms' strategic responses to nominal shocks, which in turn depend on the market structure and demand elasticities faced by firms. Price rigidities emerge when firms facing changes in aggregate demand behave collusively, and there are costs for customers to switch between suppliers. The higher the collusive behavior, the higher the possibility for these firms to maintain or eventually increase their prices during recession. In contrast, when the costs for customers to switch between suppliers are low, firms are obliged to adjust their prices to new demand conditions, otherwise they will lose their customers. Changes in foreign prices affect domestic prices depending on the degree of foreign competition and the price formation mechanism in each sector. As expected, price rigidities are minimal in tradable sectors where firms react to these changes by changing their prices almost instantaneously (although not one-for-one). The response in nontradable activities depends on indirect effects and whether prices are indexed to a foreign currency, likely when transactions are conducted in a foreign currency. Because understanding this is essential for effective policymaking, Morisset and Revoredo analyze price behavior of four economic sectors -- agriculture, industry, (retail) commerce, and services -- in Argentina from 1981 - 94. (The two nontradable sectors account for most GDP and employment in Argentina.) The econometric analysis shows large differences in the price behavior across sectors. Firms do not respond uniformly to changes in production costs, foreign prices, and demand conditions. The conclusions have obvious policy implications. The response of individual prices reflects the distribution of adjustment costs across sectors in the case of nominal shocks. This is most evident when, facing a recession, some sectors are able to maintain their margins through collusive behavior, while others have to reduce them to retain their customers. To maintain social and political stability, the government's challenge is to minimize divergence across sectors. Increasing competition appears to be a crucial element of this strategy since monopolistic power is frequently associated with the existence of price rigidities. This paper -- a product of the Country Operations Division, Country Department I, Latin America and the Caribbean -- is part of a larger effort in the department to understand goods and services market behavior in developing countries.
Author: Jacques P. Morisset
Publisher:
Published: 2016
Total Pages: 36
ISBN-13:
DOWNLOAD EBOOKMonetary and exchange rat ...
Author:
Publisher: World Bank Publications
Published:
Total Pages: 32
ISBN-13: 1019180404
DOWNLOAD EBOOKAuthor: Martha de Melo
Publisher: World Bank Publications
Published: 1996
Total Pages: 70
ISBN-13:
DOWNLOAD EBOOKAuthor: Anna Alberini
Publisher: World Bank Publications
Published: 1996
Total Pages: 38
ISBN-13:
DOWNLOAD EBOOKAuthor: Alexander J. Yeats
Publisher: World Bank Publications
Published: 1996
Total Pages: 52
ISBN-13:
DOWNLOAD EBOOKAuthor:
Publisher: World Bank Publications
Published:
Total Pages: 36
ISBN-13:
DOWNLOAD EBOOKAuthor: Torben M. Andersen
Publisher: Oxford University Press on Demand
Published: 1994
Total Pages: 186
ISBN-13: 9780198287605
DOWNLOAD EBOOKThe price adjustment process is crucial to almost any macroeconomic issue. Current macroeconomic literature features widely different models ranking from instantaneous price adjustment to completely rigid prices. Professor Andersen provides a comprehensive analysis of reasons why prices may fail to adjust instantaneously to changes in market conditions. This unified treatment will allow the reader to understand the mechanisms at work without becoming lost in technical details. This volume covers both real and nominal price rigidities and integrates existing results from the literature with new results on causes for failures of price adjustment. The analysis of real price rigidities includes inventories, customer markets, search and collusive behaviour. Due to the focus on macroeconomic implications, the analysis of nominal price rigidities is extensive and includes menu costs, informational problems, asynchronized price setting as well as the interaction between price and wage setting. Professor Andersen's own theoretical work on imperfect information, a prime source of price and wage rigidity, is given prominence in the book. The volume is thus a combination of a valuable survey of the literature, and an original expression of future possible research avenues.
Author: Ross Levine
Publisher: World Bank Publications
Published: 1996
Total Pages: 32
ISBN-13: 6101919153
DOWNLOAD EBOOK