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The macroeconomic cost of price rigidity is investigated. Price rigidity, as measured by market inertia criteria, appears characteristic of the European and Japanese economies in 1974-1992. Lower productivity and a reduction in the effectiveness of fiscal policy are studied by using the hysteresis concept to investigate the efficiency of the goods market, and is illustrated by an applied general equilibrium model for a small open economy.

India procures wheat, rice and sugar at a price below the market price and sells them in ration shops in the urban areas. The rest is sold in the open market. Various authors (including Dantwala, Mellor, and Hayami et al.) have claimed that such a policy raises the open-market price to such an extent that it leads to an increase in the average price received by farmers. They conclude that both farmers and low-income urban consumers with access to the ration shops gain, while high-income urban customers who buy at the open-market price lose. We argue in this paper that the above result holds only in a special case and under unrealistic assumptions. We examine several alternative cases. We find that the impact of the policy on the average price is either negative or ambiguous. A negative impact implies that farmers lose from the procurement policy. The impact of the policy on the average price is unambiguously negative under rationing and an unsegmented market (access by the rich to the ration shops). Under rationing and market segmentation, the impact on the average price is ambiguous unless there is significant queuing at the ration shops in which case the impact is negative. The impact is also negative under free trade. The inclusion of distribution costs increases the probability that the policy will have a negative impact on the average price.

The factors for the tendency of stock prices to 'bubble' was examined within a rational expectations equilibrium model. The phenomena of stock price bubbles is important in determining whether stock markets efficiently allocate resources. A bubble describes a situation wherein the price of an asset is greater than the 'fundamentals' of the asset. It was concluded that bubbles happen when agents do not know each others' beliefs on the true price of a stock even when they know the stock is overvalued. They expect to sell the stock at higher prices before the correct price of the stock is divulged.

The feedback of performance into the market structure and concentration variables that are functions of endogenous firm outputs or revenues are the main factors behind the endogeneity that is present in the relationship between concentration and prices. These factors account for the bias in the OLS estimator of the effect of concentration on price. A combination of fixed-effects procedures and instrumental variables can eliminate the bias produced by these factors, as shown in the negative bias generated by the application of the combined procedures in the airline industry.

The consistent conjectural price variation was determined using the spatial competition models for alternative market shapes as model. Results revealed that these variation coefficients are dependent on the market area's geographic size and shape. Furthermore, two vital results were discovered through the use of consistent conjectural variation coefficients. It was shown that Hotelling/Smithies competition permits a sufficient approximation to the results and that the hexagonal market areas build the largest welfare effects.

An endogenous growth model having two types of capital demonstrates the effects of relative input price distortions on growth and welfare. The effect's magnitude depends on the production elasticity of substitution while subsidized inputs and investment goods can increase growth despite the ill effects on welfare. However, a subsidy to a single capital good financed by a tax on another good lowers growth. Results show adverse effects of the variance of investment goods' relative prices across sectors. In addition, penalizing investment goods and distorting financial markets lowers growth.

The 'price markup' hypothesis says that prices are marked up over productivity-adjusted wages, implying that prices and wages must be correlated in the long run and that short-run movements in wages help predict short-run movements in prices. The empirical evidence reported here indicates that these implications are consistent with the data when prices are narrowly measured by the consumer price index, but not when they are broadly measured by the implicit GDP deflator. The general price level is correlated with labor costs in the long run, but the presence of this correlation appears to be due to Granger-causality running from prices to labor costs, not the other way around.

New methods or indicators for determining price competitiveness and effective exchange rates, which are developed from the index number theory and are less biased than commonly used indicators and allow two alternative aggregation procedures, are presented. The indicators are capable of flexibility through the use of time-varying weights. Their application to disaggregated data is useful in studying changes in effective exchange rates.

Prices in the US are significantly lower than the exchange-rate converted prices in other countries despite its high income-per-capita level. Ordinarily, a positive correlation is expected between real per capita income and national price level. The results of an econometric analysis conducted to explain this discrepancy show that correcting for different indirect taxation rates and population density can reduce the deviation but cannot eliminate it completely. The high degree of competitiveness of US service industries was also examined, but not tested.

A study is conducted to determine whether price changes during the Depression were anticipated. The analysis of nominal interest rates and ex post inflation shows that there was uncertainty about monetary, fiscal and exchange rate policies and that agents' expectations differed from the time series forecasts of price change. The results suggest that the deflation of the early Depression years and the subsequent inflation were largely unanticipated.

A hypothesis of firm output under conditions of revenue-neutral taxation and price uncertainty was defended. Critics of the hypothesis had shown that in cases of declining demand, industrial productivity is positively correlated to revenue-neutral tax policies. The validity of the hypothesis was justified on two points, government policy toward the industry and the existence of a competitive equilibrium. It was reaffirmed that a long-run model of the hypothesis shows that decreases in tax rates will result in the reduction of individual firm output, additional industry entry will occur and industry output will increase.

A two-stage game is presented with a vertical product differentiation model using fixed costs of quality and with variable costs of quality versions. Purpose of the exercise is examination of endogenous equilibrium qualities under proce and quantity competition. Price competition is seen to result in greater differentiation of equilibrium qualities than does quantity competition. A simple welfare measure indicates overall economic benefit is greater with price competition, a result that holds for either cost hypothesis.

This paper tests a necessary condition for the neutrality of money in a framework that imposes only weak restrictions on the money supply process. It extends Bernanke's (1986) work by weakening the set of just-identifying restrictions and by providing a statistical test of the overidentifying restrictions. Instead of specifying a structural model to identify primitive shocks, I deduce the impact effects of structural money shocks under the neutrality hypothesis and then test whether the system maintains neutrality as it propagates these impact effects. The tests reject neutrality for both the M1 and the monetary base.

This paper reports the results of an experiment that was designed to test the impact of fairness on market prices. Prices were determined in a one-sided oral auction, with buyers as price-makers. Upon acceptance of an offer, sellers determined the quality of the good. Buyers offered prices that were substantially above the market-clearing level and expected sellers to respond with high quality levels. This expectation was, on average, confirmed by the behavior of sellers. These results provide, therefore, experimental support for the fair wage-effort theory of involuntary unemployment.

A study was conducted to evaluate research on wage and price differences between Germany and the US and also to examine the relatively higher levels of unemployment for Germany compared to the US. It is shown that earlier research should have considered several factors which would have an impact on the analysis. These factors include the insignificance of error correction coefficients, the application of single-equation techniques and the impact of recursive estimation.

This paper is an attempt to enrich the characterization of the sluggish behavior of the aggregate price level. Our contribution to this vast literature is to explicitly consider microeconomic heterogeneity and its interaction with nonlinear microeconomic price adjustment policies. The model we propose outperforms the constant-probability-of-adjustment/partial-adjustment model in describing the path of postwar U.S. inflation. Using only aggregate data, we infer that the probability that a firm adjusts its price depends on the sign and the magnitude of the deviation of the price from its target level. At the aggregate level we find that the aggregate price level responds less to negative shocks than to positive shocks, that the size of this asymmetry increases with the size of the shock, and that the number of firms changing their prices - and therefore the flexibility of the price level to aggregate shocks - varies endogenously over time in response to changes in economic conditions.

The deregulated British electrical power industry submits minimum bids to supply spot power to the National Grid Company. Bidding process can result in above marginal cost pricing and inefficient dispatching of electricity. Alternative proposal is a first-price auction in which generating systems can submit offer prices for each individual set and then be ranked by their offers. With this system, demand is realized and pricing is determined by supply and demand.

The price effects and welfare consequences of a firm's strategic pricing behavior in anticipation of future price caps are examined using a simplified two-period model that assumes naivite of the regulator but capacity for strategic planning by the company. Anticipating future imposition of price caps for a product, a monopolist producer may take a variety of steps to influence current and future pricing. The study finds a strong dependence of welfare effects on the nature of the demand function. Even using a model with severe limitations, however, economists are hard-pressed to draw any unambiguous generalizations about effects on prices and consumer welfare.

An analysis of the relationships among futures market variables is presented. Trading volume, price volatility and market depth in eight markets are examined. It is shown that volatility links to volume do not exhibit total information access. Unexpected volume shocks generate greater influence over volatility. In addition, the mitigation of large open interest with volatility validate market depth theories.

The variability of stock prices at the release of inflation-adjusted information disclosures related to Accounting Series Release No 190 is examined. It is widely believed that price variability when information is released is related to what the information reveals. Results from an analysis of different stock variability metris show that inflation-adjusted data required by SEC is related with increased stock returns variability. However, this finding is applicable only to medium and large firms.

A production model which treats price and production as ex-ante variables as proposed by Karlin and Carr is analyzed to derive a determinate output volume effect given conditions of constant price elasticity of certainty demand and a uniform probability distribution. Simulation techniques are used to extend the impact of demand uncertainty on ouptut and price. The study supports Karlin and Carr's proposal that optimal price is higher than certainty price when demand is not price-elastic.

Discrepancies between voter's actual and perceived budget constraints arising from intergovernmental grants are analyzed. The model not only introduces grant illusions caused by income misperceptions but also differentiates illusions which result from income distortions and illusions due to price distortions. In addition, the magnitude of these illusions are also tested separately. Empirical analysis indicates that voter behavior is significantly influenced by income and price misperceptions.

The idea that the monetary authority cannot achieve price stability except at the cost of a recession is the most common and convincing argument against price stability. This paper presents calculations showing that the resource costs of a recession that might result from eliminating a 4 percent inflation are approximately equal to the 'shoe leather' costs incurred when inflation is stable at 4 percent.

An analysis of single price equilibrium with product differentiation is presented. The analysis focuses on industrial entry and its impact on price and product markets. Perceived prices by consumers generate their preferences and valuation, which condition product differentiation. A model with diverse consumer settings is developed for the analysis. It is shown that specific consumer demands influence market entry andprice settings.

Economies with an infinite dimensional commodity space is analyzed to estimate its price supportability of weak Pareto optimal allocations. Results show that there exists a weak approximate support for commodity-price duality which indicates a weak Pareto optimum. Furthermore, in a finite dimensional setting, free disposal of an allocation indicates the approximate support property if it enjoys the support property.

A study was conducted to evaluate the relationships between money, prices and income in Canada. The study applies econometric cointegration to examine nonstationary time series data. Results show that although monetary aggregates are not good policy goals, they present information on macroeconomic activity which can be used for setting monetary policy. These results validate the role of aggregates as target and information variables.

A representative-agent model was used to illustrate the trade deficit in the 1980s, particularly the relationship between the balance of trade in durable and nondurable goods. The model demonstrated that the role of intertemporal prices in durable goods was the primary distinction between the balance of trade in durables and nondurables. A decline in intertemporal prices would affect the balance of trade of durables more than that of nondurables.

A welfare analysis of price and interest rate smoothing policies is presented. The analysis follows earlier studies which have attempted to remove seasonal variations involving prices and nominal interest rates and applies a money-in-the-utility-function model. Results show that smoothing promotes welfare. However, these policies are non-optimal and depend on shock origin forformulation.

This paper shows that in a rational expectations equilibrium with different types of agents who are informed and uniformed about a piece of information, price variability may increase as the proportion of agents who are informed increases. This is a surprising result and the paper establishes the conditions under which price variability will increase as the percentage of informed agents increases.

Cross-dual dynamic models assume that prices depend on excess demand and on planned production, while full-cost models assume that prices depend on cost of production plus mark-up. These two models are evaluated in order to analyze the relationship of production price to actual price. Covergence and gravitation towards equilibrium is examined in the context of dynamic stability theory. The findings indicate that cross-dual models result in unstable discrete-time models, while full-cost models are stronger, albeit short-term in scope.

A study was conducted to analyze a framework by which an enterprise handles the terms-of-trade effect. The effect conditions variations in input to output prices and prices of goods and services on which income is based. The study examines data from the German telecom sector to measure such an effect and to examine the case of real income. Results show that the framework developed from the German study is applicable to managerial economic studies.

A study was conducted to analyze point in-point out inventory investment under price uncertainty. The study assumes that optimal quantity is reached when investors maximize their risk preference's expected value. An exponential risk preference function is applied in examining optimal quantity adjustment based on interest rate variation. Results show that adjustment is conditioned by profit and price distribution schemes.

BORIS N. MIRONOV. Consequences of the price revolution in eighteenth-century Russia. In eighteenth-century Russia the price revolution took place two centuries later than in western Europe The general index of prices expressed in grams of silver went up nearly five times, with various and contradictory consequences. On the one hand, it contributed to the consolidation of the serfdom system, and to the development of agriculture at the expense of industry, while strengthening the nobility and helping to preserve the monarchical structure of society. On the other hand, it stimulated the development of commodity-money relations, promoted foreign trade, and multiplied economic and cultural contacts with European countries.

House price appreciation was studied based on data during 1971-1989 covering 56 metropolitan statistical areas (MSAs). Variances for housing rates occured locally. Although the national economy showed its effect on the local market, no specific effects were noted for individual MSAs in the period covered. This means housing investors expected the same returns in different areas. Equal appreciation rates across MSAs, which reflect equal expected appreciation, goes against observed price level differences. For equilibrium in the housing market to hold, the relationship between equal rates and different price levels must be balanced by income increases across specific MSAs.

Optimal joint production decision, joint product selling prices and joint cost allocations for a monopoly firm can be determined simultaneously through a net realizable value. The model eliminates the interdependency problem between product cost and prices using the nonlinear programming approach. It is applicable for imperfectly competitive firms with which the ordinary cost-pricing policies cannot apply.

Diagrammatic analysis is used to explain wage and price inflexibility via consumer theory. Threshold behavior is examined in the context of the product market and consequently extended to macroeconomic analysis. Psychological thresholds provide an additional explanation for kinked demand curves other than asymmetric information. Given that empirical studies indicate that such exist, threshold behavior could become a major factor in consumer theory.

When the spot price and production risk are jointly normally distributed, the mean-variance approach has little theoretical justification. We use Taylor approximations instead and show the three results. One, farmers hedge less than expected production when the futures price is less than or equal to the expected spot price. Two, when the futures price equals the expected spot price, farmers facing production risk produce less than those without production risk. Three, normal backwardation (contango) prevails in the markets when correlation between the spot price and production risk is smaller (greater) in absolute value than the ratio of coefficients of variation of these variables.

This paper studies the stability of price competition in a horizontally differentiated duopoly. The firms' demand is derived from a distribution of consumer preferences. This description of the consumer sector is applicable to a large class of differentiated commodity markets, including spatial competition models. We show that there is a (pure) price setting equilibrium when consumer tastes are sufficiently dispersed. Further conditions on the dispersedness of preferences guarantee uniqueness of the equilibrium. In addition, we examine the relation between consumer preferences and the competitiveness and efficiency of the equilibrium outcome.

The definitions of 'fundamental value' and 'speculative bubbles' that are standard in macroeconomics and finance are given formal representations as the countably additive part and the purely finitely additive part (a measure and a pure charge, respectively) of the supporting price system, when the commodity space is L [infinity]. Examples illustrate that rational bubbles can occur in standard general equilibrium models with complete markets and a finite number of agents, even in the absence of uncertainty.

The effects of market structure changes on industry prices was studied using data from the international air transport industry. The period analyzed was 1976-81, when the US implemented a new air transport policy intended to spur competitive pricing among airlines. Models for estimating transport prices and prices among markets were presented. It was determined that the new policy lowered air fares by about 35%, and about $325 million was saved by US travelers in 1981.