Adjustment Lags, Economically Rational Expectations and Price Behavior

Bibliographic Data

ID19312975
AuthorsLouis J Maccini (corresponding author)
Year1981
Volume63
Issue2
Pages213
Publication date1981-05-01
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueThe Review of Economics and Statistics (JOURNAL)
Journal identifiersISSN: 0034-6535 • E-ISSN: 1530-9142
PublisherJSTOR (PUBLISHER)
DOI10.2307/1924092
OpenAlexW2008173273
LanguageEN
Citations received1
References cited3

source and the extent of lags in the response of prices to changes in various explanatory variables. Knowledge of the relevant lag patterns is of obvious importance for forecasting movements in prices and for formulating policies that are designed to reduce the rate of inflation. In the recent empirical literature on prices, the model most commonly used to specify price equations is the static neo-classical model of price formation.1 This model presumes that the representative firm behaves as if it were a simple monopolist that faces competitive factor input markets. The firm is assumed to set its price so as to maximize current profits. The model yields the proposition that the firm's long-run optimal price depends on expected normal factor input prices and variables, e.g., expected real income, that shift the firm's demand curve. Lags are introduced into the pricing process of this model in two ways. Some authors2 focus on expectation formation lags whereby normal factor input prices or variables that shift the firm's demand curve are related through distributed lags to past values of the variable being forecast. Often, the distributed lag is assumed to be

Econometrics · Economics · Microeconomics · Monetary economics · Rational expectations · Consumer Market Behavior and Pricing · Economic theories and models · Monetary Policy and Economic Impact

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