Economics, Econometrics and Finance
4 years ago

Imperfect information leads to optimal price staggering, impacting economic stability.

American Economic Review
Imperfect Information and Staggered Price Setting
Laurence Ball, Stephen G. Cecchetti

Paper Summary

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Firms change prices at different times because they don't have all the information about the economy. They watch what other firms do to figure out what's going on. This makes it smart for each firm to set its price right after others do. This staggered pricing can be the normal way things work. Even though it can make the economy go up and down more, it can still be the best choice for everyone.