Journal of Political Economy Vol. 94 No. 1 1986
The Output-Inflation Trade-off When Prices Are Costly to Change
Abstract
The output-inflation trade-off is investigated in a rational expectations equilibrium economy in which costly price setting makes it inefficient for agents to vary their prices at every instant. It is shown that "sticky prices" are not some exogenous source of output fluctuation but result from the monetary policy process. An economy with slow and counterinflationary money growth exhibits staggered changes in sticky prices as assumed in some "new-Keynesian" analyses. An economy with fast money growth and a high degree of monetary accommodation exhibits either flexible prices or "bunched," frequently changing sticky prices.
- DOI
- 10.1086/261369
- Volume
- 94
- Issue
- 1
- Pages
- 200-224
- Language
- en
- Sources
- crossref openalex