Working Paper

Does state-dependent pricing imply coordination failure?

Abstract: The analysis in Ball and Romer [1991] suggests that models with fixed costs of changing price may be rife with multiple equilibria; in their static model price adjustment is always characterized by strategic complementarity, a necessary condition for multiplicity. We extend Ball and Romer's analysis to a dynamic setting. In steady states of the dynamic model, we find only weak complementarity and no evidence of multiplicity, although nonexistence of symmetric steady state with pure strategies does arise in a small number of cases.

Keywords: Monetary policy; Prices; Mathematical models;

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Working Paper

Publication Date: 1999

Number: 99-05