restaurant prices and the minimum wage in this paper we examine the effect of the minimum wage on restaurant prices we contribute both to the study of economic impact of the minimum wage and to the study of microeconomic patterns of price stickiness for this purpose we use a unique data set of individual price quotes collected to calculate the consumer price index in france and we estimate a price rigidity model based on a flexible s s rule we find a positive and significant impact of the minimum wage on prices the effect of the minimum wage on prices is however very protracted a change in the minimum wage takes more than a year to fully pass through to retail prices

reversing the keynesian asymmetry the assumption that nominal price adjustment is costly for firms there are menu costs has generated a stream of important theoretical papers over the last decade or so insofar as this literature generates asymmetric adjustments it provides a theoretical underpinning for the old keynesian assumption that nominal prices are more flexible upward than downward yet the empirical evidence while confirming that asymmetries exist does not indicate the dominance of any particular form of asymmetry see dennis w carlton 1986 alan s blinder 1991 in this paper we argue that the gap between theory and practice may be the result of the focus of menu cost models on specific forms of market structure existing menu cost models are based on the assumption of relatively uncompetitive market structures monopoly oligopoly or monopolistic competition with a fixed number of firms we widen the scope of the analysis by examining what we call a quasi competitive industry and demonstrate that it displays a pattern of adjustment quite different from that found in other models the keynesian asymmetry is reversed with nominal price being more flexible downward than upward we suggest therefore that a relationship exists between market structure and the pattern of nominal price adjustment since there is presumably a variety of market structures this may help explain the inconclusive empirical evidence we model the most competitive market configuration compatible with menu costs bertrand oligopoly in a dynamic setting with free entry it is assumed that a an incumbent in one period can continue to sell at its existing nominal price in the next period without incurring any additional menu cost whereas an entrant would have to incur a menu cost and b among the firms willing to sell at the lowest price in any given period one is chosen randomly to sell the product these simplifications enable us to abstract from matters such as determining the identity of active firms extraneous to our main concern of establishing a clean connection between market structure and the pattern of price in flexibility to set a benchmark and to obtain a simple solution by backward induction we begin by assuming a two period time horizon then we extend the analysis to the case where the incumbent faces an ever recurring threat of entry that is with an infinite horizon this is the scenario we call quasi competitive comparing these two extreme cases yields an intuitively appealing relationship between competitiveness and the pattern of nominal price adjustment bennett department of economics and finance brunel university uxbridge middlesex united kingdom ub8 3ph la manna department of economics university of st andrews st andrews scotland united kingdom ky16 9al this work developed out of earlier discussions with subhashish gupta we are also grateful to v bhaskar huw dixon elisabetta iossa jonathan thomas and anonymous referees for very helpful comments 1 for surveys see n gregory mankiw and david romer 1991 torben m andersen 1994 and huw david dixon and neil rankin 1994 2 models providing some support for the keynesian asymmetry include daniel tsiddon 1993 and laurence ball and mankiw 1994 however robert j barro 1972 and mankiw 1985 among others produce two directional stickiness the tsiddon and ball mankiw models are based on the assumption of positive trend inflation whereby a firm that wishes to reduce its relative price finds that it can do so costlessly merely by keeping its nominal price unchanged conversely a firm that wishes to raise its relative price finds that inflation widens the gap between its desired and actual nominal price thereby providing a strong incentive to incur a menu cost and raise its nominal price 3 a similar pattern of greater downward flexibility is found in kinked demand curve models but there it occurs essentially by assumption see for example jean tirole 1988 pp 243 44 4 a bertrand duopoly model that yields the keynesian asymmetry can be found in per svejstrup hansen et al 1996 although their model and ours are not directly comparable insofar as they consider real shocks and produce asymmetric price adjustments in the absence of menu costs we conjecture that the opposite asymmetry generated by our model is due to our key assumption of free entry 5 to establish the basic message of the paper it is not necessary to examine the more complicated case of a tperiod model where t 2

contract renewal under uncertainty abstract the incentive to adjust prices is considered from a bilateral perspective in a setting where changes in outside opportunities drive the incentive to renew contracts and costs preclude continuous renewal a model encompassing several contract forms is formulated and the existence of an equilibrium to the bilateral renewal game is established prices display inertia and the incumbent contract is found to be more resistant to changes in outside opportunities the larger the costs of contract renewal the variability of outside opportunities and the lower the discount rate the model is shown to match a number of empirical observations on contracts

state dependent pricing and the dynamics of money and output standard macroeconomic models of price stickiness assume that each firm leaves its price unchanged for a fixed amount of time we present an alternative model in which the pricing decision depends on the state of the economy we find a method of aggregating individual price changes that allows a simple characterization of macroeconomic variables the model produces a positive money output correlation and an empirical phillips curve in addition the impact of monetary shocks depends crucially on the current level of output which points to a natural connection between state dependent microeconomics and state dependent macroeconomics i introduction there is a long tradition in macroeconomics of attributing the real effects of nominal demand shocks to nominal price stickiness in this view if there is no change in prices when nominal demand rises then quantities must bear the burden of adjustment hence nominal price rigidity provides the friction needed for nominal demand shocks to be transmitted to the real economy standard models of this transmission mechanism such as fischer 1977 and taylor 1980 are based on the assumption that each firm leaves its price unchanged for a fixed amount of time the main reason for considering such time dependent pricing rules is their analytic tractability constraining firms to adjust their prices at prespecified times both simplifies the derivation of equilibrium strategies and allows the use of powerful time series techniques to analyze aggregate dynamics the main disadvantage of the timedependent approach is that between price adjustments firms are not allowed to respond even to extreme changes of circumstance this makes it difficult to know whether the qualitative effects of money in these models are the result of nominal rigidities per se or of the exogenously imposed pattern of price changes an alternative approach to modeling price stickiness is to allow the price setting decision to depend on the actual state of the

the behavior of prices and inflation an empirical analysis of disaggregat price data this paper analyzes the effects of inflation on the dispersion of prices as well as other aspects of price behavior using disaggregated data on prices of foodstuffs in israel during 1978 84 we find that the effect of expected inflation on intramarket price variability is stronger than the effect of unexpected inflation we show that even in times of high inflation price quotations are not trivially short and price changes are not synchronized across firms these facts taken together confirm that there is some staggering in the setting of prices we find that the distribution of real prices is far from being uniform as many menu cost based models assume or conclude in fact as inflation increases to very high levels this distribution is not even symmetric when the annual inflation rate reaches 130 percent there are equal chances of finding real prices above or below the market average but upward deviations in the real price are further away from zero than downward ones furthermore as the annu

effects of free choice among public schools in this paper i investigate the impact of a programme in tel aviv israel that terminated an existing inter district busing integration programme and allowed students free choice among public schools the identification is based on difference in differences and regression discontinuity designs that yield various alternative comparison groups drawn from untreated tangent neighbourhoods and adjacent cities across identification methods and comparison groups the results consistently suggest that choice significantly reduces the drop out rate and increases the cognitive achievements of high school students it also improves behavioural outcomes such as teacher student relationships and students social acclimation and satisfaction at school and reduces the level of violence and classroom disruption

consumer demand and the life cycle allocation of household expenditures the purpose of this paper is to estimate the parameters of household preferences that determine the allocation of goods within the period and over the life cycle using micro data in doing so the authors are able to identify important effects of demographics labor market status and other household characteristics on the intertemporal allocation of expenditure they test the validity of the life cycle model using excess sensitivity tests and find that controlling for demographics and labor market status variables can largely explain the excess sensitivity of consumption to anticipated changes in income

inflation nominal interest rates and the variability of output abstract this paper examines the distribution of output around capacity when money demand is a nonlinear function of the nominal interest rate such that nominal interest rates cannot become negative when fluctuations in output result primarily from disturbances to the money market the variance of output is shown to be an increasing function of the trend inflation rate when they result from disturbances to the goods market the variance of output is a decreasing function of the trend inflation rate when both disturbances are significant there exists in general a critical non zero trend inflation rate that minimizes the variance of output

the proper scope of government theory and an application to prisons when should a government provide a service in house and when should it contract out provision we develop a model in which the provider can invest in improving the quality of service or reducing cost if contracts are incomplete the private provider has a stronger incentive to engage in both quality improvement and cost reduction than a government employee has however the private contractor s incentive to engage in cost reduction is typically too strong because he ignores the adverse effect on noncontractible quality the model is applied to understanding the costs and benefits of prison privatization

competition between private and public schools vouchers and peer group effects a theoretical and computational model with tax financed tuition free public schools and competitive tuition financed private schools is developed students differ by ability and income achievement depends on own ability and on peers abilities equilibrium has a strict hierarchy of school qualities and two dimensional student sorting with stratification by ability and income in private schools high ability low income students receive tuition discounts while low ability high income students pay tuition premia tuition vouchers increase the relative size of the private sector and the extent of student sorting and benefit high ability students relative to low ability students

quality competition with profit constraints abstract firms in markets such as health care and education are often profit constrained due to regulation or their non profit status and they are often viewed as being altruistic towards consumers we use a spatial competition framework to study incentives for cost containment and quality provision by altruistic firms facing profit constraints if prices are regulated profit constraints lead to lower cost containment efforts but higher quality if and only if firms are sufficiently altruistic under price competition profit constraints reduce quality and cost containment efforts but lead to lower prices if and only if firms are sufficiently altruistic profit constrained firms cost containment efforts are below the first best while their quality might be too high or too low if prices are regulated profit constraints can improve welfare and be a complement or substitute to a higher regulated price depending on the degree of altruism

lumpy price adjustments a microeconometric analysis based on a reduced form state dependent pricing model with random thresholds we specify and estimate a nonlinear panel data model with an unobserved factor representing the common cost or demand components of the unobserved optimal price using this model we are able to assess the relative importance of common and idiosyncratic shocks in explaining the frequency and magnitude of price changes in the case of a wide variety of consumer products in belgium and france we find that the mean level and variability of the random thresholds are key for explaining differences across products in the frequency of price changes we also find that the idiosyncratic shocks represent the most important driver of the magnitude of price changes supplementary materials for this article are available online

competition incentives and public school productivity abstract when competition increases it is often presumed that public schools will be forced to become more efficient this paper challenges that presumption showing that in well defined circumstances rent seeking public schools find it optimal to reduce productivity when a voucher is introduced this occurs for incentive reasons alone more generally the productivity effects of vouchers are shown to be non uniform varying systematically according to the distribution of households and the form the voucher takes when the voucher is targeted perverse productivity outcomes do not arise the analysis has relevance to the policy issue of voucher design

price setting with menu cost for multi product firms we model the decisions of a multiproduct firm that faces a fixed menu cost once it is paid the firm can adjust the price of all its products we characterize analytically the steady state firm s decisions in terms of the structural parameters the variability of the flexible prices the curvature of the profit function the size of the menu cost and the number of products sold we provide expressions for the steady state frequency of adjustment the hazard rate of price adjustments and the size distribution of price changes all in terms of the structural parameters we study analytically the impulse response of aggregate prices and output to a monetary shock the size of the output response and its duration both increase with the number of products they more than double as the number of products goes from 1 to 10 quickly converging to the response of taylor s staggered price model

the nonprofit sector and industry performance abstract despite the importance of nonprofit industries in the economy little analysis has been conducted as to whether the behavior of such industries differs from that of for profit industries extending previous firm level analyses we propose a neoclassical theory with an endogenous nonprofit sector our analysis implies that nonprofit firms have a competitive advantage over for profit firms so that marginal changes in the industry operate through the for profit sector as such marginal industry behavior is identical to that of a for profit industry and nonprofit regulations may have a limited impact or even no impact on overall industry performance our theory has the methodological advantage that standard for profit analysis applies directly to nonprofit firms because they can be analyzed as for profit firms with lower costs we discuss aspects of the empirical literature that test this theory of nonprofit activity

trend employment growth and the bunching of job creation and destruction research using u s manufacturing data finds that job destruction fluctuates more over time than job creation but some new data indicate that this behavior is not shared in growing sectors where job creation varies more an explanation for this finding based on the interaction between s s type adjustment and trend employment growth delivers some tight predictions for the relationship between trend growth and the volatility of creation relative to destruction although it scores some notable successes the simple s s based model augmented with a low frequency trend cannot fully account for the strength of the empirical relationship between relative gross flow volatility and trend growth across one digit industries

menu costs and the neutrality of money a model of endogenous price adjustment under money growth is presented firms follow s s pricing policies and price revisions are imperfectly synchronized in the aggregate price stickiness disappears and money is neutral the connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated the results contrast with those obtained in models with exogenous fixed timing of price adjustment

inflation and asymmetric output adjustments by firms i introduction recent empirical research has rejuvenated interest in the idea that output responds asymmetrically to monetary shocks cover 1988 found that in the usa during the post wwii period positive shocks to the money supply had no effect on output whereas negative shocks reduced output his results have been corroborated by de long and summers 1988 and morgan 1993 using different time periods and measures of monetary shocks results from karras 1996a b suggest output asymmetry may be an international phenomenon the reasons for output asymmetry remain unclear they may be due to asymmetries anywhere in the transmission of monetary shocks to output asymmetric price adjustment by firms is one possible explanation but to date the evidence concerning price asymmetry has been mixed using data from 38 countries karras 1996b finds no evidence of price asymmetry in response to money supply shocks whereas studies of the effect on inflation of aggregate output gaps by laxton meredith and rose 1995 and turner 1995 imply that money supply shocks are more inflationary as an economy approaches full capacity and less inflationary when an economy approaches low capacity the aim of this paper is to test whether output responds asymmetrically to shocks and to evaluate the role of firm pricing behavior our approach is different from previous studies in several respects we use micro level firm data we evaluate both output and price asymmetry for a common sample of firms and we evaluate the influence of inflation the only previous empirical work examining the influence of inflation on output asymmetry is rhee and rich 1995 who find that the asymmetric relationship between monetary shocks and aggregate output revealed by cover is influenced by inflation we use individual firm data obtained by a survey of new zealand manufacturing firms to estimate a model of output and price change based on a theoretical model of price and output asymmetry developed by ball and mankiw 1994 they consider a situation in which firms make regularly scheduled price changes and by paying a menu cost can also make special adjustments in response to shocks to desired price the presence of menu costs of price adjustment implies a zone of no price change over which shocks to desired price will not result in a change in actual price inflation affects the opportunity cost of not changing price and therefore the position of this zone of no price change asymmetries in the response of prices to shocks therefore arise naturally when there is positive trend inflation and are predicted to be more pronounced at higher rates of inflation ball and mankiw suggest that a corollary of price asymmetry is output asymmetry at high inflation prices are predicted to be more responsive to positive shocks than to negative shocks and output more responsive to negative shocks than to positive shocks as inflation falls these asymmetries are predicted to become less pronounced we evaluate output and price asymmetry and the influence of inflation in two ways first we estimate the zone of no price change and the zone of no output change and evaluate how inflation affects the position of these zones second we evaluate how the response of prices and output to positive and to negative cost and demand shocks vary with inflation using ordered probit analysis we find evidence of output asymmetry and price asymmetry which are systematically related to inflation furthermore the relative behavior of output and prices is consistent with price asymmetry being an explanation for output asymmetry the remainder of the paper is structured as follows the second section explains why firm prices and output may respond asymmetrically to shocks and the potential role of inflation in this process the third section explains the survey data used to test for asymmetry at different rates of inflation

the industrial organization of health care markets the u s health care sector is large and growing health care spending in 2011 amounted to 2 7 trillion and 18 percent of gdp approximately half of health care output is allocated via markets in this paper we analyze the industrial organization literature on health care markets focusing on the impact of competition on price quality and treatment decisions for health care providers and health insurers we conclude with a discussion of research opportunities for industrial organization economists including opportunities created by the u s patient protection and affordable care act

the asymmetric effects of monetary policy a nonlinear vector autoregression approach this paper tests for nonlinearity in a standard vector autoregression including output prices and money supply using an estimation strategy that is consistent with a wide range of structural macroeconomic models shocks to the money supply are found to have stronger output effects and weaker price effects when output growth is initially low positive and negative monetary shocks are found to have nearly symmetric effects in addition there is some evidence that shocks of different magnitudes have asymmetric effects these results are consistent with the view that the aggregate supply curve is convex

collective decision making and heterogeneity in tastes this article begins by proposing a random taste parameterization of a quadratic extension of the piglog demand system at the household level which is consistent with exact aggregation this variation in tastes is a random function of household characteristics the econometric implication is that a well defined heteroscedastic error enters the demand system this heteroscedasticity can be handled by a gmm technique using a large canadian cross sectional household data set and the quadratic almost ideal demand system homoscedasticity is rejected however when heteroscedasticity is allowed for there are no longer inconsistencies between the theoretical and empirical evidence particularly with respect to the collective decision making properties of homogeneity sr1 symmetry and distribution factor proportionality and linearity

the asymmetric effects of monetary shocks the case of turkey this paper examines whether there is an asymmetry in the effects of positive versus negative and small versus big money supply shocks and whether the effects of the shocks on output and prices vary over the business cycles in the case of turkey negative shocks to money are found to have greater output and smaller price effects compared to the effects of positive shocks irrespective of the initial state of the economy it is also found that monetary shocks of different size affect output growth and inflation rates proportionately these findings can be interpreted as evidence for the view that the short run aggragate supply curve is convex in such a country like turkey

asymmetric effects of money supply shocks and trend inflation in recent years a number of empirical studies have presented evidence that money supply shocks have asymmetric effects that is unexpected negative changes in the money supply slow the economy more than unexpected positive changes accelerate the economy evidence of asymmetry was documented by cover 1992 for the postwar u s economy and his finding was confirmed by de long and summers 1988 morgan 1993 rhee and rich 1995 and karras 1996a b stimulated by these empirical works several attempts have been made to provide microeconomic foundations for the asymmetric effects of money supply shocks 1 among those theories this paper examines the one that focuses on asymmetric price adjustment and let us call it a sticky price theory money supply shocks will have asymmetric effects on real output if prices are less flexible downward than upward this sticky price theory was proposed by tsiddon 1993 ball and mankiw 1994 and caballero and engel 1992 by employing a menu cost model the above researchers show that positive trend inflation can produce the asymmetric effects of money supply shocks the logic of their theory is the following along with price adjustment costs positive trend infla

the mis behaviour of the aggregate price level this paper investigates the response of the price level to random monetary shocks through a model of the fixed cost of changing a nominal price it shows that in an inflationary environment an expansionary monetary shock is accommodated faster than a contractionary monetary shock furthermore when the average rate of monetary expansion increases the lag in response to a positive shock decreases the study also proves that the relationship between the expected rate of inflation and the variance of real prices is positive only above a critical level of expected inflation the most striking result in this area appears in the work of caplin and spulber 1987 they show that in the aggregate when inflation is monotone stickiness disappears even when all firms follow a strict s s rule in their model since firms are uniformly distributed discontinuous price adjustment at the firm level does not create stickiness at the aggregate level caballero and engel 1992 extend this analysis to incorporate idiosyncratic shocks they show that in the presence of monotone idiosyncratic shocks the long run stationary distribution of prices is the uniform distribution but in the short run when the distribution of prices is arbitrary aggregate stickiness can result from firms discontinuous price adjustments in the present work the focus shifts i use a model where aggregate stickiness emerges naturally from firms discontinuous price setting to investigate the effects of the rate of inflation on aggregate stickiness this work shows that aggregate stickiness is negatively correlated with the rate of inflation the higher the rate of inflation the less sticky the response of the aggregate price level with respect to positive nominal shocks and the closer the economy approaches the caplin and spulber model therefore when modeling a dynamic inflation tax one must account not only for the decrease in the monetary base but also for the increase in the speed at which the aggregate price level 889

competition in public service provision the role of not for profit providers abstract with public services such as health and education it is not straightforward for consumers to assess the quality of provision many such services are provided by monopoly not for profit providers and there is concern that for profit providers may increase profit at the expense of quality this paper explores the implications of entry by for profit providers when there is unobserved quality the model generates three key policy relevant insights first by developing a novel approach to competition between different organizational forms it frames the relevant trade offs precisely second it shows the value of keeping an incumbent not for profit as an active provider third it characterizes the optimal payment or voucher value to an entrant for each consumer who switches in a way that can be applied empirically

efficient intra household allocations a general characterization and empirical tests the neoclassical theory of demand applies to individuals yet in empirical work it is usually taken as valid for households with many members this paper explores what the theory of individuals implies for households that have more than one member we make minimal assumptions about how the individual members of the household resolve conflicts all we assume is that however decisions are made outcomes are efficient we refer to this as the collective setting we show that in the collective setting household demands must satisfy a symmetry and rank condition on the slutsky matrix we also present some further results on the effects on demands of variables that do not modify preferences but that do affect how decisions are made we apply our theory to a series of surveys of household expenditures from canada the tests of the usual symmetry conditions are rejected for two person households but not for one person households we also show that income pooling is rejected for two person households we then test for our collective setting conditions on the couples data none of the collective setting restrictions are rejected we conclude that the collective setting is a plausible and tractable next step to take in the analysis of household behavior

optimal pricing with costly adjustment evidence from retail grocery prices in many theoretical models it is assumed that there are costs associated with adjusting prices in this paper the existence type and magnitude of such costs are investigated empirically a discrete choice dynamic programming model that nests fixed and variable costs is developed and econometric estimates of the adjustment cost function are obtained the data used to implement the model consist of weekly retail prices and sales of three brands of saltine crackers sold by four chains of grocery stores in a small u s town the study has several distinguishing characteristics first the data are highly disaggregate at the level of brand and store second variables are sampled at weekly intervals third the model nests fixed and variable adjustment costs and can therefore determine their relative importance finally the discrete choice model is both structural and dynamic

synchronization of price changes by multiproduct firms evidence from canadian newspaper prices abstract using data for canadian daily newspapers we find that price changes of papers owned by the same firm are synchronized on the other hand independently owned newspapers do not appear to change their prices together

are the effects of monetary policy asymmetric huntley schaller by building on the hamilton 1989 markov switching model we examine questions like does monetary policy have the same effect in expansions and recessions given that the economy is currently in a recession does a fall in interest rates increase the probability of an expansion does monetary policy have an incremental effect on the growth rate within a given state or does it only affect the economy if it is sufficiently strong to induce a state change e g from recession to expansion as suggested by models with sticky prices or finance constraints interest rate changes have larger effects during recessions jel e52 e32 much of the recent work in macroeconomics has proceeded under the assumption that variables follow linear stochastic processes with constant coefficients as a result some of the richness of the burns mitchell analysis such as its focus on asymmetries between recessions and expansions may well have been lost blanchard and fischer 1989 7 i introduction for decades macroeconomists have debated whether monetary policy has the same effect on real output in expansions and recessions as far back as the 1930s keynes and pigou debated whether monetary policy would have less effect on output during a severe economic downturn in the 1960s there were active debates on a very different proposition namely whether the rightward portion of the aggregate supply curve was vertical so that monetary policy would have less effect on real output during expansions in this article we provide a new type of evidence on whether monetary policy has different effects depending on whether the economy is in an expansion or recession empirical evidence on this issue is particularly relevant in light of new theoretical work in macroeconomics that predicts asymmetric effects of demand shocks conditional on the state of the economy two examples of this work are s s type models of price adjustment and models in which there are agency costs of financial intermediation 1 the intuition for the latter class of models is simple 2 when there is information asymmetry in financial markets agents may behave as if they were constrained for a variety of reasons these finance constraints are more likely to bind during recessions when the net worth of agents is low an increase in interest rates will then have two effects on investment the standard effect of increasing the cost of capital and therefore reducing investment demand and an additional effect of reducing liquidity e g by increasing debt service obligations and thus reducing investment demand for constrained agents as a result monetary policy actions that change interest rates will have greater effects during a recession 3 the s s type price adjustment models of ball and mankiw 1994 caballero and engel 1992 and tsiddon 1993 lead to a convex aggregate supply curve and therefore also imply that monetary policy will have stronger effects during recessions one of the more frequently cited empirical papers on the potentially asymmetric effects of monetary policy is cover 1992 which finds evidence that positive monetary shocks have different effects from negative monetary shocks we are looking at a different type of asymmetry namely between booms and recessions we study asymmetries using an extension of the markov switching model developed by hamilton 1989 estimated over the period 1955 93 in hamilton s econometric specification the growth rate of output depends on a state variable that corresponds to an expansion or recession this approach has several advantages first unlike linear projections it allows for nonlinearities and asymmetries second in estimating the recession coefficients it gives greater relative weight to observations that most clearly correspond to recessions and similarly for the expansion coefficients

risk aversion and the choice between risky prospects the preservation of comparative statics results most results in what can be termed the comparative statics of risk aversion are obtained when there is only one source of uncertainty the primary example which originally motivated the definition of risk aversion is that more risk averse people are willing to pay a higher premium for insuring against risk it is known that the results do not generally carry over when there is another source of uncertainty the paper develops conditions under which comparative statics results are robust against the introduction of additional sources of uncertainty

additive general error models for production cost and derived demand or share systems many empirical studies of production specify a deterministic model of the firm derive the implied behavioral equations input demand or share system and then embed this system in a stochastic framework by tacking on linear error terms in contrast this paper proposes general error models gems in which the error specification is an integral part of the optimization model these models are the statistical embodiment of stigler s view that apparent observed inefficiencies reflect the investigator s ignorance of the true optimization problem additive gems are proposed and interpreted specification tests indicate that a translog additive gem is superior to the standard translog specification

inflation and relative price variability in the open economy this paper explores the determination of relative price variability in a small open economy operating under a fixed exchange rate a central ingredient of the model presented is the distinction made between traded and non traded goods this distinction leads to a decomposition of total variability into three components the variabilities within each set of goods and between the two sets the analysis also emphasizes the effects of expected versus unexpected inflation on the variability of relative prices the model is tested using annual data for mexico covering the 1951 76 period

relative price variability and inflation a disaggregated analysis relative price variability has been studied at the cross sectional intermarket level this paper addresses the equally important phenomenon of intramarket variability the dispersion of commodity price movements around the industry average using quarterly price data for 80 disaggregated commodity groups in the united kingdom from 1974 to 1984 the paper investigates the determinants of intramarket price variability and replicates some previous crosssectional tests for the united kingdom intermarket price variability is found to be positively related to inflation which confirms previous results for the united states and other countries intramarket variability is found to be positively related to the average market rate of price change but the strength of this relationship appears to be inversely related to the level of industry concentration these results generally support the propositions and findings reported by stigler and kindahl

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

age trend and cohort effects in a macro model of canadian expenditure patterns a quadratic almost ideal demand system allowing for age cohort and trend effects is developed at the macro level the model is estimated by maximum likelihood using a three tier iterative search method applied to pooled 1961 1992 time series for five regions of canada and six categories of expenditure hypothesis tests indicate support for the model specification elasticities are compared with those reported in other studies with special attention to food effects of demographic and trend variables on elasticities and expenditure shares are investigated an overall conclusion is that such effects can be very important in a macro demand system

on the stubbornness of sticky prices this paper presents a simple menu cost example in which there is a clear distinction between price stickiness and downward rigidity of prices while price stickiness may or may not exist in menu cost models downward rigidity shows up whenever there is a reduction of the expected rate of inflation this reduction changes the optimal target and threshold for each firm for some it also implies an immediate increase of their own price this upward jump of prices in case of a disinflationary attempt is interpreted as downward rigidity since there are no symmetric forces when expected inflation increases copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

optimum pricing policy under stochastic inflation we describe aggregate inflation as a stochastic process in which the rate of change of the price level can be positive or zero where the times spent in each state are of random duration this class of processes includes two state markov chains and renewal processes as special cases it is shown that the optimal pricing policy of a monopolistic firm with non convex costs of price adjustment is s s in its real price i e its nominal price relative to the price level a basic certainty equivalence result is proved i e the firm behaves as if it faces a certain and fixed rate of inflation higher than the actual expected rate the difference between the two rates being a risk premium which depends on the real interest rate and the parameters of the stochastic process one can thus apply previous results from the case of certainty sheshinski and weiss review of economic studies 1977 to obtain comparative static results in particular one finds that an increase in the variance of expected inflation leads firms to choose a pricing policy with larger amplitude in real price the paper also addresses the question of consistency in firms expectations when the price level is determined by the firms actions in this paper we consider pricing policies of individual firms in an inflationary environment each firm expects the general price level to increase and must determine the rate of increase of its own price it is assumed that the firm incurs an adjustment cost when it changes its nominal price consequently firms choose to change prices occasionally rather than continuously

linking individual and aggregate price changes this paper studies the implications of lumpiness and heterogeneity in microeconomic pricing decisions for dynamics in price aggregates to capture the latent deviation between actual and target prices it develops a semi structural empirical model of two sided s s price setting applying the model to a unique panel of store level retail prices reveals that fluctuations in the shape of cross sectional price deviation densities contain extra information on aggregate price change dynamics asymmetry in the density particularly matters idiosyncratic shocks magnify the size but do not alter the direction of aggregate fluctuations when the target price is proxied by the cross store mean price the link between inflation and the price deviation density disappears

sticky prices in a dynamic oligopoly an investigation of s s thresholds abstract the strategic implications of costly price adjustment are investigated empirically i assume that managers are engaged in a state space game and ask if the dynamic considerations that arise when they condition their choices on the state cause prices to be more or less rigid than when players use more myopic pricing rules the answer to this question depends on a parametric specification of the problem that lends itself to empirical assessment the micro panel data used to investigate this issue consist of weekly prices sales costs and promotional activity for three brands of saltine crackers sold by four chains of grocery stores in a small us town i find that in this market strategic behavior exacerbates price rigidity the thresholds are wider and the time between changes is longer than would be observed in a more myopic setting

asymmetries in price setting behavior new microeconometric evidence from switzerland in this paper we follow the recent empirical literature that has specified reduced form models for price setting that are closely tied to s s pricing rules our contribution to the literature is twofold first we propose an estimator that relaxes distributional assumptions on the unobserved heterogeneity second we use the estimator to examine the prevalence of positive price changes in a low inflation environment our model estimates suggest that if inflation falls from 0 9 to zero the share of positive price changes in all price changes falls from 63 6 to 56 2

the effects of general inflation and idiosyncratic cost shocks on within commodity price dispersion evidence from microdata this study investigates the dispersion of price levels within highly disaggregated markets by examining plant level product records from the u s census of manufactures the paper estimates the effects of inflation on price dispersion through cross sectional variation in the drift rate of average input costs within a market arguing that in several models that relate inflation to price dispersion the effects of cost increases on dispersion is similar to the effects of general inflation we also disentangle the effects of aggregate and idiosyncratic shocks on price dispersion in general we find that the higher the drift rate of input costs of a given commodity the larger the amount of price dispersion the standard deviation of idiosyncratic shocks also is positively correlated with the degree of price dispersion

why are prices sticky the dynamics of wholesale gasoline prices the menu cost interpretation of sticky prices implies that the probability of a price change should depend on the past history of prices and fundamentals only through the gap between the current price and the frictionless price we find that this prediction is broadly consistent with the behavior of nine philadelphia gasoline wholesalers nevertheless we reject the menu cost model as a literal description of these firms behavior arguing instead that price stickiness arises from strategic considerations of how customers and competitors will react to price changes

the random utility hypothesis and inference in demand systems in this paper the authors examine the consequences of adopting the random utility hypothesis as an approach for randomizing a system of demand equations random utility models are appealing since they allow the usual assumption of deterministic utility maximizing behavior by each consumer to coexist with the apparent randomness across individuals that is exhibited by data their results show that the use of random utility models implies that the disturbances of the demand equations may not be homoskedastic but must be functions of prices and or income copyright 1989 by the econometric society

what do we learn about consumer demand patterns from micro data the aim of this paper is to assess the importance of using micro level data in the econometric analysis of consumer demand to do this we utilize a time series of repeated cross sections covering some 4 000 households in each of 15 years employing a number of different aggregation procedures we conclude that aggregate data alone are unlikely to produce reliable estimates of structural price and income coefficients however once certain aggregation factors as well as trend and seasonal components are included an aggregate model is not necessarily outperformed across all demand equations in terms of forecasting ability jel d12 c52 c31 the purpose of this paper is to develop a complete consumer demand system based on a time series of individual household data and to use it to measure the biases introduced into the study of consumer de mand behavior when aggregate data are used in place of the appropriate microeco nomic data we assess the suitability of ag gregate data through the impact on income and price elasticities and by evaluating the ability of both micro and aggregate based models to forecast aggregate consumer de mand the biases introduced by the use of aggregate data depend upon the way that household characteristics interact with in come and price effects and on departures of demand systems from linearity we explore the structure of microeconomic demand sys tems and the role of household characteris tics in the behavior of consumer demand both for the light this may shed on the pattern of future demands and for the im plications this behavior has for issues of aggregation consumer demand patterns typically found in micro data sets vary considerably across households with different household characteristics and with different levels of income we model this variability by making intercept and slope parameters in the budget share equations of our demand sys tem depend on household characteristics and by allowing for nonlinear total log expenditure terms in fact in theory consistent demand systems it is total ex penditure rather than disposable income that is allocated across goods we find that this general framework leads to a well specified data coherent demand system which is a quadratic extension of the popu lar almost ideal model of angus s deaton and john muellbauer 1980 the micro level estimates are shown to be sensitive to the treatment of endogeneity of total expen diture and to the specification of interaction terms with household characteristics in ad dition this specification is also shown to possess many attractive features for the evaluation of aggregate models

quadratic engel curves and consumer demand this paper presents a model of consumer demand that is consistent with the observed expenditure patterns of individual consumers in a long time series of expenditure surveys and is also able to provide a detailed welfare analysis of shifts in relative prices a nonparametric analysis of consumer expenditure patterns suggests that engel curves require quadratic terms in the logarithm of expenditure while popular models of demand such as the translog or the almost ideal demand systems do allow flexible price responses within a theoretically coherent structure they have expenditure share engel curves that are linear in the logarithm of total expenditure we derive the complete class of integrable quadratic logarithmic expenditure share systems a specification from this class is estimated on a large pooled data set of u k households models that fail to account for engel curvature are found ro generate important distortions in the patterns of welfare losses associated with a tax increase

on endogenously staggered prices taylor s model of staggered contracts is an influential explanation for nominal inertia and the persistent real effects of nominal shocks however in standard imperfect competition models if agents are allowed to choose the timing of pricing decisions they will typically choose to synchronize this paper provides a simple model of imperfect competition which produces stable staggering our argument relies on strategic interaction at two levels between firms within an industries and across industries and produces a continuum of staggered price equilibria these equilibria are strict and hence stable under a simple adaptive learning process an enduring problem for business cycle theory is an explanation for the persistent effects of nominal shocks explaining persistence is particularly problematic for theories based on nominal shocks as opposed to real shocks this is because rational expectations implies that nominal shocks themselves cannot be serially correlated since nominal shocks are the deviation of realized nominal magnitudes from expected values in two important papers taylor 1979 1980 provided an argument as to why a nominal shock can have persistent effects taylor s argument required two important assumptions first he assumed that firms could adjust prices only in alternate periods an assumption which may be justified by menu or information costs taylor s second assumption was that price setting was staggered half the firms were constrained to adjust prices in odd periods while the other half were allowed to adjust prices in even periods these two assumptions combined to provide dramatic results on nominal inertia the adjustment of prices to a nominal shock is slow and hence output effects are long lasting taylor s results on persistence arise due to strategic complementarity between price setting decisions this implies that each firm s optimal price is an increasing function of the aggregate price level if a shock arrives in an even period firms in the even cohort will not adjust fully to the nominal shock since firms in the odd cohort have fixed prices in the current period furthermore with rational expectations the even cohort also takes into account the fact that its own failure to adjust fully will also make for partial adjustment in future periods this elegant story has made taylor s model possibly the most influential of new keynesian models by providing a dynamic setting within which small nominal rigidities may result in persistent nominal inertia