STOCHASTIC INFLATION AND THE OPTIMAL POLICY OF PRICE ADJUSTMENT

Leif Danziger

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Monetary Policy and Economic Impact Merger and Competition Analysis Capital Investment and Risk Analysis

Abstract

This paper analyzes the optimal policy of price adjustment for a monopolistic firm in the presence of stochastic inflation. It shows that an increase in the expected rate of inflation or in the cost of price adjustment leads to an increase in the initial real price and a decrease in the terminal real price in each period with a fixed nominal price. It also shows that the effects of increased riskiness of inflation are ambiguous.

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1971Optimum consumption and portfolio rules in a continuous-time model 1960MATHEMATICAL METHODS IN THE SOCIAL SCIENCES, 1959 1966A Model of the Demand for Money by Firms 1977Inflation and Costs of Price Adjustment 1972A Theory of Monopolistic Price Adjustment 1981Relative Shocks, Relative Price Variability, and Inflation 1983Optimum Pricing Policy under Stochastic Inflation 1980The Effects of Monetary Change on Relative Commodity Prices and the Role of Long-Term Contracts

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2015Price Rigidity in Turkey: Evidence from Micro Data 1992SOME EVIDENCE ON LUMP SUM VERSUS CONVEX COSTS OF CHANGING PRICES 1990THE NEAR OPTIMALITY OF MARK‐UP PRICING

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