Events at CERGE-EI
Friday, 10 February, 2012 | 15:00 | Macro Research Seminar
Dr. Jean-Paul L’Huillier: “Consumers' Imperfect Information and Price Rigidities”
Einaudi Institute for Economics and Finance, Italy
Author: Jean-Paul L’Huillier
Abstract:
This paper develops a model of price rigidities and information diffusion in decentralized markets with private information. First, I provide a strategic microfoundation for price rigidities, by showing that firms are better off delaying the adjustment of prices when they face a high number of uninformed consumers. Second, in an environment where consumers learn from firms' prices, the diffusion of information follows a Bernoulli differential equation. Therefore, learning follows nonlinear dynamics. Third, the price rigidity produces an informational externality that affects welfare. Fourth, the dynamics of output are hump-shaped due to consumer learning.
Full Text: “Consumers' Imperfect Information and Price Rigidities”
