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Search, sticky prices and deflation

Diamond, Peter and Felli, Leonardo (1993) Search, sticky prices and deflation. Mimeo . (Unpublished)

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Abstract

This paper examines equilibrium in a deflationary environment, in a market with free entry where consumers search and firms set prices on individual units of the commodity. Prices attached to newly produced goods are continuously adjusted. Prices attached to previously produced goods can only be changed at a cost. Deflation cuts into the market power created by the need to search for the good. Thus consumers' welfare is inverse u-shaped in deflation.

Item Type: Article
Additional Information: © 1993 The authors
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 06 Feb 2009 11:03
URL: http://eprints.lse.ac.uk/4698/

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