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We accomplish two tasks to characterize aggregate price stickiness in this
paper. First, we endogenize ß , 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 ß
can be considered an indicator of aggregate price stickiness by its definition, the endogenized
ß
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 ß, where
.. is the fraction change in money supply.
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