Information frictions, monetary policy, and the paradox of price flexibility

• 成果类型: Article
• 署名作者: Ou, Shengliang; Zhang, Donghai; Zhang, Renbin
• 署名单位: Shanghai University of Finance & Economics; University of Bonn; Shandong University
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2021.03.005
• 发表日期: 2021
• 页码: 70-82
• 关键词: New Keynesian model; information frictions; Spillover effects; monetary policy; Paradox of price flexibility

摘要

A B S T R A C T The introduction of digital price tags and e-commerce facilitates the implementation of price adjustments and thereby diminishes the degree of nominal rigidity in an economy. Is this phenomenon welfare-improving? We address this question using a multi-sector New Keynesian model with information frictions and dispersed beliefs. Increased price flexibility may decrease welfare through the dispersed belief channel and the amplified spillover effects. Dispersed beliefs create a novel channel through which the welfare cost of inflation in a sector increases with price flexibility, altering the optimal inflation index stabilization policy. A monetary policy that stabilizes the optimal inflation index mitigates this paradox. (c) 2021 Elsevier B.V. All rights reserved.