a price that changes is changing less than it would if it were perfectly flexible.

Linking micro data of prices and cost, Carlsson and Nordström Skans (2012), showed that firms consider both current and future expected cost when setting prices. The finding that the expectation of future conditions matter for the price set today provides strong evidence in favor of nominal rigidity and the forward looking behavior of the price setters implied by the models of sticky prices outlined below.

Modeling sticky prices

Economists

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