Guimaraes, Bernardo and Sheedy, Kevin D. (2008) Sales and monetary policy. CEP Discussion Papers, 887. Centre for Economic Performance, London School of Economics and Political Science, London, UK.
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A striking fact about prices is the prevalence of ``sales'': large temporary price cuts followed by a return exactly to the former price. This paper builds a macroeconomic model with a rationale for sales based on firms facing consumers with different price sensitivities. Even if firms can vary sales without cost, monetary policy has large real effects owing to sales being strategic substitutes: a firm's incentive to have a sale is decreasing in the number of other firms having sales. Thus the flexibility of prices at the micro level due to sales does not translate into flexibility at the macro level.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2008 the authors|
|Library of Congress subject classification:||H Social Sciences > HB Economic Theory|
|Journal of Economic Literature Classification System:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
|Sets:||Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
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