Convenient prices, currency, and nominal rigidity
Subtitle: theory with evidence from newspaper prices
By: Edward S. Knotek II
Contributors: Federal Reserve Bank of Kansas City. Research Division
Series: RWP -- 05-11; Research working paper (Federal Reserve Bank of Kansas City : Online) -- 05-11.
Publisher: Research Division, Federal Reserve Bank of Kansas City
Published: 2005
Place of publication: Kansas City [Mo.]
Language: eng
Format: [electronic resource] :
Description: "Newspapers, movie tickets, and concession stand items typically charge prices that facilitate rapid, simple transactions: their prices often coincide with available monetary units, require few pieces of money, or require little change. In this sense, these prices are more convenient than other proximate prices. I model a firm that explicitly incorporates convenience into its pricing decisions, where convenience is quantified by the number of currency units in a transaction. The model illustrates how alternating periods of price rigidity and flexibility can arise in such a setting, along with rapid switching between convenient prices. I compile time series data on newspaper cover prices and use simulations to show that convenience is an essential component of these prices. In the empirical data, firms set prices that were more convenient than adjacent prices 61% of the time. Standard menu costs cannot replicate this behavior. Because convenience appears to affect many of the consumer goods and services with the stickiest prices in the U.S. economy, studies focusing on very sticky prices must be cognizant of convenience's role in effecting above-average price rigidity."
Notes: Title from PDF file (viewed on Jan. 3, 2006).

"December 2005."

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.