Why are gasoline prices sticky? A test of alternative models of price adjustment

Christopher Douglas and Ana María Herrera
Additional contact information
Christopher Douglas: Department of Economics, University of Michigan-Flint, Flint, MI, USA, Postal: Department of Economics, University of Michigan-Flint, Flint, MI, USA

Journal of Applied Econometrics, 2010, vol. 25, issue 6, 903-928

Abstract: Macroeconomic models of business cycles rely on the assumption that firms adjust prices infrequently to generate the short-run non-neutrality of money documented by the monetary transmission literature. They posit different mechanisms to generate price stickiness, with correspondingly different implications for inflation dynamics. Using an autoregressive conditional binomial model, we test which mechanism is most consistent with the pattern of price adjustment found in daily wholesale gasoline price data. Our results lead us to reject menu costs and information-processing delays but suggest that strategic considerations related to the idea of 'fair pricing' play an important role in accounting for price stickiness. Copyright © 2009 John Wiley & Sons, Ltd.

Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (29)

Downloads: (external link)
http://hdl.handle.net/10.1002/jae.1115 Link to full text; subscription required (text/html)
http://qed.econ.queensu.ca:80/jae/2010-v25.6/ Supporting data files and programs (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jae:japmet:v:25:y:2010:i:6:p:903-928

Ordering information: This journal article can be ordered from
http://www3.intersci ... e.jsp?issn=0883-7252

DOI: 10.1002/jae.1115

Access Statistics for this article

Journal of Applied Econometrics is currently edited by M. Hashem Pesaran

More articles in Journal of Applied Econometrics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().