Premium
STOCHASTIC INFLATION AND THE OPTIMAL POLICY OF PRICE ADJUSTMENT
Author(s) -
DANZIGER LEIF
Publication year - 1984
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1984.tb00669.x
Subject(s) - economics , inflation (cosmology) , monopolistic competition , price setting , price level , monetary policy , monetary economics , relative price , econometrics , microeconomics , monopoly , physics , theoretical physics
This paper analyzes the optimal policy of price adjustment for a monopolistic firm in the presence of stochastic inflation. It shows that an increase in the expected rate of inflation or in the cost of price adjustment leads to an increase in the initial real price and a decrease in the terminal real price in each period with a fixed nominal price. It also shows that the effects of increased riskiness of inflation are ambiguous.