Price Inertia and Production Lags
1991 (English)Report (Other academic)
The paper shows how prolonged price inertia can arise in a macroeconomic system in which there are temporary price rigidities as well as production lags in the use of intermediate goods. In this context, changes in product demand - generated, say, by changes in the money supply - have long-lasting price and quantity effects. Specifically, a temporary demand shift generates "persistence" in price-quantity decision, in the sense that the price-quantity effects of this shift persist for long after the shift has dosappeared. A permanent demand shift generates "sluggishness" in price-quantity decisions, in the sense that the full price effects of the shift take a long time to appear and that meanwhile quantity effects are present.
Place, publisher, year, edition, pages
Stockholm: IIES , 1991. , 33 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 494
price rigidities, price inertia, production lags, New Keynesian economics
IdentifiersURN: urn:nbn:se:su:diva-41801OAI: oai:DiVA.org:su-41801DiVA: diva2:337790