Nominal shocks in monopolistically competitive markets: An experiment |
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Authors: | Douglas Davis Oleg Korenok |
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Affiliation: | Virginia Commonwealth University, USA |
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Abstract: | A market experiment examines the capacity of price and information frictions to explain real responses to nominal price shocks. Results indicate that both price and information frictions impede the response to a nominal shock, as predicted by the standard dynamic adjustment models. Observed adjustment delays, however, far exceed predicted levels. Results of a pair of subsequent treatments indicate that a combination of announcing the shock privately to all sellers (rather than publicly) and a failure of many sellers to best respond to their expectations explains the observed adjustment inertia. |
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