... This paper is a sequel to Working Paper No. 3131, "Hypotheses of Sticky
Wages and Prices". My first objective is to re-examine the historical record
of prices and wages. What changes in their behavior are indicated by the data
and how can they be explained? Next, the models that imply that price
... believe they will make more profits however this is not the case as all prices are going up. When they
think they are making more money they produce more than when they notice it goes down again.
Sticky wages- In the economy the prices are increasing at different speeds this may be because of
... Slopes downward &
to the right:
1. a general fall in
the real value of
(we can afford to
2. It also lowers
the prices of our
Demand shocks and sticky prices
... bonds, etc.
• Economic investment is
creation/expansion of business
enterprise**Key***Investment is limited
by the amount of saving
Chapter 24: Measuring the Cost of Living
... Money loaned out is worth less
Add expected inflation onto price
charged for loan (interest rate)
The rate you pay now (nominal)
= expected inflation +real IR
... “The long run is a misleading guide to current
affairs. In the long run we are all dead.
Economists set themselves too easy, too useless
a task if in tempestuous seasons they can only
tell us that when the storm is past the ocean is
The Keynesian Short-Run Aggregate Supply Curve— Sticky Prices
... the price level. It was a period of high unemployment
of resources and double-digit unemployment—that is,
sufficient level of excess capacity and little competition
to bid up input prices.
Most macroeconomists now believe that price
and wages are not completely inflexible downward.
However, wages an ...
Collection of Prices
... products to represent price trend of discontinued
product without direct comparison between price
of old and new product. Difference in price of
imputed price (old product) and new product is
the implicit quality adjustment
• Substitution bias: Use formulae that allow for
substitution effects e. g t ...
... If AD decreases, recession and cyclical
unemployment may result
Wage contracts are not flexible, business
can’t afford to reduce prices
Employers are reluctant to cut wages b/c
impact on EE effort
Minimum Wage Laws keep wages up
Menu Costs are difficult to change
Fear of price wars keeps prices from ...
Last day to sign up for AP Exam
... 1. A decrease in AD will lead to a persistent recession because
prices of resources (wages) are NOT flexible.
2. Increase in AD during a recession puts no pressure on prices
Lecture 2: New Keynesian Model in Continuous Time
... RBC model: cannot even think about these issues! Real
variables are completely separate from nominal variables
(“monetary neutrality”, “classical dichotomy”).
Corollary: monetary policy has no effect on any real variables.
Sticky prices break “monetary neutrality”
Workhorse model at central banks (s ...
Trend of the price of spot-LNG (Preliminary Figures for January 2016
... link) is excluded from these statistics. Objects of these statistics are spot-LNGs the prices of which
are determined at the time of contract (so-called “fixed price”).
・Delivery conditions of prices (prior to averaging) are all converted into equivalent DES basis.
・Prices in the table are the simpl ...
... Suppose you wanted to buy a quantity of oil
in 6 months time. Spot Price = $60 per
- Could wait 6 months and purchase at new
- Could purchase forward today of $65 per
barrel and lock in a fixed price today.
Eliminates risk if price is higher than $65
Price Stickiness - Personal.psu.edu
... ship into port. If fact, the Keynesians go one step farther and argue that it is the
obligation or duty of policymakers to pursue full employment and stable prices, many
times referred to as a dual mandate. Click Here for more.
So why are prices sticky? The first observation is that we need to note ...
Mankiw 5/e Chapter 5: The Open Economy
... A price reduction by one firm causes the overall
price level to fall (albeit slightly).
This raises real money balances and increases
aggregate demand, which benefits other firms.
9-1 - Intro to Macro
... Why study the whole economy?
• The field of macroeconomics was born during
the Great Depression.
• Government didn’t understand how to fix a
depressed economy with 25% unemployment.
• Macro was created to:
1. Measure the health of the whole economy.
2. Guide government policies to fix problems.
Nominal rigidity, also known as price-stickiness or wage-stickiness, describes a situation in which the nominal price is resistant to change. Complete nominal rigidity occurs when a price is fixed in nominal terms for a relevant period of time. For example, the price of a particular good might be fixed at $10 per unit for a year. Partial nominal rigidity occurs when a price may vary in nominal terms, but not as much as it would if perfectly flexible. For example, in a regulated market there might be limits to how much a price can change in a given year.If we look at the whole economy, some prices might be very flexible and others rigid. This will lead to the aggregate price level (which we can think of as an average of the individual prices) becoming ""sluggish"" or ""sticky"" in the sense that it does not respond to macroeconomic shocks as much as it would if all prices were flexible. The same idea can apply to nominal wages. The presence of nominal rigidity is animportant part of macroeconomic theory since it can explain why markets might not reach equilibrium in the short run or even possibly the long-run. In his The General Theory of Employment, Interest and Money, John Maynard Keynes argued that nominal wages display downward rigidity, in the sense that workers are reluctant to accept cuts in nominal wages. This can lead to involuntary unemployment as it takes time for wages to adjust to equilibrium, a situation he thought applied to the Great Depression that he sought to understand.