Financial Management White Papers
Sticky Prices, Coordination and Enforcement
Overview Price-setting models with monopolistic competition and costs of changing prices can exhibit coordination failure. In response to a monetary policy shock, individual agents may lack incentives to change prices even if all would be better off by doing so, implying that price stickiness is a symmetric Nash equilibrium (SNE). This paper considers an alternative benchmark equilibrium in which coordination must be enforced by threat of punishment of the deviators.
| Publisher | Federal Reserve Board | File Format | |
|---|---|---|---|
| Date Published | August 2003 | ||
| Format | White Papers | ||
| Topics | |||
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