Asking About Prices offers a groundbreaking empirical approach to a puzzle for which theories abound but facts are scarce. Why do consumer prices and wages adjust so slowly to changes in market conditions? The rigidity or “stickiness” of prices is central to the Keynesian economic theory and vital to understanding hom monetary policy works, yet economistshave made little headway in understanding why prices adjust so sluggishly. Leading economist Alan S. Blinder, with coauthors Elie R.D. Canetti, David E. Lebow, and Jeremy B. Rudd, interviewed a national, multi-industry sample of company heads and other corporate price setters to test the validity of twelve prominent theories of price stickiness. Using everyday language, the carefully designed survey asked decision makers whether the considerations identified in each theory entered into thier own decision processes. Do businesses view the costs of changing prices as too high? Do they worry that lower prices will be equated with poorer quality goods? Are firms more likely ot try alternate strategies to cutting prices, such as warehousing excess inventory or improving the quality of service? To what extent are prices held in place by contractual agreements, or by “invisible handshakes”?
Blinder, Canetti, Lebow, Rudd
Russell Sage Foundation – 1998