State-Dependent Pricing under Infrequent Information: A Unified Framework

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe characterize optimal state-dependent pricing rules under various forms of infrequent information. In all models, infrequent price changes arise from the existence of a lump-sum "menu cost." We entertain various alternatives for the source and nature of infrequent information. In two benchmark cases with continuously available information, optimal pricing rules are purely state-dependent. In contrast, in all environments with infrequent information, optimal pricing rules are both time-and state-dependent, characterized by "trigger strategies" that depend on the time elapsed since the last date when information was fully factored into the pricing decision. After considering the case in which information arrives infrequently for exogenous reasons, we address pricing problems in which gathering and processing information also entails a lump-sum cost. When the information and adjustment costs must be incurred simultaneously, the optimal pricing policy is a fixed-price time-dependent rule. When the costs are dissociated, the optimal rule features price stickiness and inattentiveness. Finally, we consider versions of the price-setting problems in which firms continuously entertain partial information. We characterize the optimal pricing rules and provide numerical solution algorithms and examples in a unified framework.

Are State- and Time-Dependent Models Really Different?

“…These results build on, and extend, previous contributions in Alvarez and Lippi (2014), Alvarez, Le Bihan, and Lippi (2016), and Alvarez, Lippi, and Paciello (2016). We generalize the previous results by showing that they also hold in settings that feature both state-and time-dependent frictions as considered by Abel, Eberly, andPanageas (2007, 2013), Alvarez, Lippi, and Paciello (2011), Bonomo et al (2010), and Bonomo et al (2016).…”

“…But, differently from the menu-cost model described above, upon an observation the firm may find its state strictly outside of the inaction region, that is, it may strictly prefer to adjust. Versions of this model are analyzed in Alvarez et al (2011), Alvarez, Lippi, and Paciello (2016), Bonomo, Carvalho, and Garcia (2010), and Bonomo et al (2016).…”

“…We assume that the preference shocks satisfy A ki (t) = Z ki (t) h− 1 so that the share of expenditure on different goods are constant in the frictionless case. This convenient assumption was used by Woodford (2009), Bonomo et al (2010) Midrigan (2011, and Alvarez and Lippi (2014).…”

“…The first part of the paper formalizes the definition of time-dependent and state-dependent models (TD and SD, respectively), and analyzes the propagation of monetary shocks under the different frictions. The class of models we consider embeds (approximately) several classic sticky price models, such as Taylor (1980), Calvo (1983), Reis (2006), Golosov and Lucas (2007), Nakamura and Steinsson (2010), Midrigan (2011), Bonomo, Carvalho, and Garcia (2010), Bhattarai and Schoenle (2014), Carvalho and Schwartzman (2015), and several other cases that are novel in the literature. All the models considered are characterized by the presence of idiosyncratic shocks with continuous paths.…”

Imperfectly Credible Disinflation under Endogenous Time‐Dependent Pricing

“…This shuts down the effect of past expectations about the current underlying state of the economy. Bonomo, Carvalho and Garcia (2010) study a model in which firms have partial information about the underlying state of the economy, and moreover face a menu cost to change prices and a separate information cost to gather and process full information about such state. They find that the optimal pricing policy in this context is both time‐ and state‐dependent.…”