Aggregate Price Stickiness

Zhiyong An

We accomplish two tasks to characterize aggregate price stickiness in this
paper. First, we endogenize , the fraction of the firms keeping their price
unchanged following a money supply shock in the near-rationality model (Akerlof and Yellen, 1985) by introducing a distribution of price-adjustment barriers among the firms into the near-rationality model. Second, as
can be considered an indicator of aggregate price stickiness by its definition, the endogenized enables us to characterize aggregate price stickiness by studying its properties. We show that: (1) ...; (2)...; and (3) the possibility of multiple equilibrium values of , where .. is the fraction change in money supply.

Key Words: Small menu costs; Near-rationality; Aggregate price stickiness; Strategic complementarities; Coordination failure.
JEL Classification Numbers: E32