Doctoral Dissertations

Date of Award

8-1998

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Economics

Major Professor

Sidney Carroll

Committee Members

Charles Garrison, Jean Gauger, Greg Pompelli, Victor Stango

Abstract

The purpose of this dissertation is to empirically examine two industries for evidence of hierarchial delays in price setting and related phenomenon, especially staggered price setting. To do so, I begin by explaining the relevance of both nominal price rigidities and staggered price setting to a New Keynesian model of the macroeconomy. Areas of potential research into this phenomena as well a map for selecting the appropriate markets is included. This is followed by a basic model of the firm in which informational delays and decision costs form the basis of an examination of firm behavior that relies on bounded rationality to generate hierarchial delays. Extensions of the model include multiproduct firms, and information impactedness. The modeling process falls within the framework of the New Institutional economics.

The markets selected for empirical analysis are the microcomputer market from 1993-1995 and the Colorado Wholesale Wine Market during 1996. In both markets, product price changes are analyzed for evidence of inter and intra firm synchronization in price setting, finding asynchronous price adjustment in both industries employing a number of criteria. The frequency of price adjustment, as a dependent variable suggesting hierarchial delays, is tested on a variety of firm level explanatory variables related to hierarchy size. The econometric technique of note is an information complexity approach to model selection under conditions of extreme multicollinearity suggested by Bozdogan [1996]. The findings are that the frequency of price adjustment is negatively correlated with measures of firm size, and positively correlated with proxies of the ease of decisionmaking in firms. This strongly suggests that price decisions are subject to hierarchial delays that generate nominal price rigidities of macroeconomic consequence.

Conclusions of this research include a rejection of the neutrality of money and strong evidence of hierarchial delays in firms. Further research is suggested, including a need for informational aspects of firm behavior to be studied in greater depth and research into firm level behavior within the context of hierarchies.

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