Sticky Prices in the United States

It has often been argued that prices are sticky in the United States. However, the empirical papers that have claimed to support this view have not reflected any formal behavioral theory. This paper presents a theory that justifies price stickiness, namely, that firms, fearing to upset their customers, attribute a cost to price changes. The rational expectations equilibrium of an economy with many such firms is presented, estimated with postwar U.S. data, and tested against alternative hypotheses. The results largely support the model. Furthermore, the hypothesis that prices are not sticky is rejected by U.S. data.

• Publication year

  1982

• Venue

  Journal of Political Economy

• Publication date

  1982-12-01

• Fields of study

  Economics

• Identifiers
  DOI 10.1086/261117
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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