tag:blogger.com,1999:blog-2499715909956774229.post6206563613013996261..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: More on Sticky PricesStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-2499715909956774229.post-55528731915923758692011-05-19T11:10:23.500-07:002011-05-19T11:10:23.500-07:00Not sure what you are getting at. Of course the Lu...Not sure what you are getting at. Of course the Lucas critique matters. I'm not sure what you think "the point" is. The point of what?Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-75663948493847198612011-05-16T07:26:54.963-07:002011-05-16T07:26:54.963-07:00The first post is missing the point. If you assum...The first post is missing the point. If you assume menu costs, but the real mechanism is search, then your policy intervention measurements will be wrong. Prediction is of course important, but it cannot be the end of the story. The Lucas critique applies and matters.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-19707009165557795212011-05-15T04:43:40.324-07:002011-05-15T04:43:40.324-07:00I think trying to come up with a realistic descrip...I think trying to come up with a realistic description of how businesses set their prices is largely irrelevant to macroeconomics. <br /><br />The relevant question is: does assuming prices are sticky lead to a model which gives more accurate predictions about business cycles, the effects of monetary policy, etc.?<br /><br />If the answer is yes, then the question becomes how to model the phenomenon of sticky prices in a way that's consistent with rational, optimizing agents. Menu costs are obviously a leading candidate. The realism of this type of model is irrelevant. All that matters is whether assuming menu costs (or whatever) at the micro level leads to a more accurate description of how the aggregate economy behaves.<br /><br />If sticky prices do not lead to more accurate predictions (if, say, the evidence shows that money is neutral) then we should discard them from the model. The fact that some firms may change prices infrequently (whether due to menu costs or anything else) is beside the point.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-31190194689027811112011-05-11T20:46:55.552-07:002011-05-11T20:46:55.552-07:00I think with the internet and other tech advances ...I think with the internet and other tech advances prices are less sticky. But what about sticky wages?<br /><br />There are certainly huge personal risk and security reasons, human psychology, and negotiations costs to have wages stuck (at least downwardly) for substantial periods. And then of course there's well documented downward nominal wage resistance.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-56118906954229866422011-05-11T13:30:43.543-07:002011-05-11T13:30:43.543-07:00anonymous,
Yes, I keep trying to give these stick...anonymous,<br /><br />Yes, I keep trying to give these sticky prices a chance, but that is where I seem to end up.<br /><br />Joe,<br /><br />Yes, exactly.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-36970469115400865102011-05-11T13:15:50.680-07:002011-05-11T13:15:50.680-07:00I think it's also important to point out that ...I think it's also important to point out that in the Wright et al. paper, money is neutral: the nominal price distribution changes in response to a monetary expansion but the real price distribution is constant (even though some firms don't change their prices!). At least that's how it worked the last time I saw Randy present the paper.joehttps://www.blogger.com/profile/16779379560917428758noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-43728218007031745322011-05-11T12:04:24.970-07:002011-05-11T12:04:24.970-07:00thanks, steve. your last sentence seems to me to ...thanks, steve. your last sentence seems to me to be the important one.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-49964941286932012432011-05-11T11:59:06.263-07:002011-05-11T11:59:06.263-07:00It's hard to say exactly what people mean when...It's hard to say exactly what people mean when they say "menu costs." This last model is one where there are some frictions - search/information costs - that imply that sellers with identical production technologies can be selling goods at different prices. Basically firms selling at high prices are getting some rents from people who are "desperate" in some sense, and the low-price firms are making it up in volume. The Fed comes along and increases the money supply. This implies that the distribution of prices has to change, but that does not require that all firms change their prices. That seems interesting to me. I think about all the frictions there are in the world that make it costly for consumers to find particular goods and services at low prices, and the model suggests to me that this type of phenomenon could be quite general in practice, leading me to think that, even if see prices changing infrequently, that does not tell me anything about the effects of monetary policy. Thus, if I want to think about why, if at all, the Fed can affect things like real GDP and the unemployment rate, I might be wasting my time thinking about the pricing decisions of firms.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-73473504045323645472011-05-11T10:57:31.038-07:002011-05-11T10:57:31.038-07:00so the gist of the paper is that sticky prices can...so the gist of the paper is that sticky prices can arise without menu costs. is that the right interpretation? and why is this an important result in practice, rather than "just" in theory?Anonymousnoreply@blogger.com