The Output-Inflation Trade-off When Prices Are Costly to Change | Zendy

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The Output-Inflation Trade-off When Prices Are Costly to Change

Author(s) -

Michael Parkin

Publication year - 1986

Publication title -

journal of political economy

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 21.034

H-Index - 186

eISSN - 1537-534X

pISSN - 0022-3808

DOI - 10.1086/261369

Subject(s) - economics , inflation (cosmology) , monetary policy , monetary economics , new keynesian economics , rational expectations , price level , accommodation , keynesian economics , macroeconomics , physics , theoretical physics , neuroscience , biology

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.

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