Sales and monetary policy
By: Bernardo Guimaraes and Kevin Sheedy.
Contributors: Sheedy, Kevin D.; London School of Economics and Political Science. Centre for Economic Performance.
Series: CEP discussion paper -- no. 887
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Published: 2008
Place of publication: London
Language: eng
Format: Electronic resource
Description: A striking fact about prices is the prevalence of "sales'": large temporary price cuts followed by a return exactly to the former price. This paper builds a macroeconomic model with a rationale for sales based on firms facing consumers with different price sensitivities. Even if firms can vary sales without cost, monetary policy has large real effects owing to sales being strategic substitutes: a firm's incentive to have a sale is decreasing in the number of other firms having sales. Thus the flexibility of prices at the micro level due to sales does not translate into flexibility at the macro level.
Notes: Title from PDF file (viewed on Oct. 10, 2008).

"August 2008."

Includes bibliographical references.

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