Reportgreen1993

Inflation and the Informativeness of Prices

50 citations0/0 files storedNational Bureau of Economic Research

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Monetary Policy and Economic Impact Consumer Market Behavior and Pricing Economic theories and models

Abstract

This paper studies the welfare effects of the relative-price variability arising from inflation. If customers and suppliers form long-term relationships, prices have an informational role: a potential customer uses current prices as signals of future prices. Inflation reduces the informativeness of current prices, causing customers to make costly mistakes about which relationships to enter. In addition, the reduced informativeness of prices makes demand less price elastic, thereby increasing markups. Both effects can be quantitatively significant at moderate inflation rates.

Citations in this library

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References

1971Industrial Market Structure and Economic Performance.1990Industrial market structure and economic performance 1973Some International Evidence on Output-Inflation Tradeoffs.1977Nobel Lecture: Inflation and Unemployment 1987Markets with Consumer Switching Costs 1999Asking about prices: a new approach to understanding price stickiness 1997The Magnitude of Menu Costs: Direct Evidence from Large U. S. Supermarket Chains 2004Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets

Cited by

2004Inflation, Inflation Variability, and Corruption 2006The Anatomy of a Price Cut: Discovering Organizational Sources of the Costs of Price Adjustment 2005Buying Less, But Shopping More: Changes In Consumption Patterns During A Crisis 1999On high inflation and the allocation of resources 2019Not all price endings are created equal: Price points and asymmetric price rigidity 1996The Long-Run Costs of Moderate Inflation

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