Microeconomic price rigidity is one of the main assumptions of the neo-keynesian macroeconomic models. Firms are not able to adjust continuously their prices. In this paper, we make a synthesis of the main microeconomic price setting theoretical models and of their empirical counterparts. Price rigidity is often justified by two models: a first one assumes that prices are time-dependent. At each period, a constant proportion of firms can change their prices. A lot of recent empirical works provide estimates of this proportion and evaluate its stability over time. A second model assumes that prices are state-dependent. Firms have to pay an adjustment cost each time they change their price and it can be optimal to differ a price change. These adjustments costs are empirically measured and empirical studies focus on the impact of these menu costs on the inflation process.
Classification JEL : E31, E52.
Keywords : Price rigidity, inflation, monetary policy.
Updated on: 06/12/2018 10:59