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

Christopher Douglas, Ana María Herrera

Research output: Contribution to journalArticlepeer-review

26 Scopus citations


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.

Original languageEnglish
Pages (from-to)903-928
Number of pages26
JournalJournal of Applied Econometrics
Issue number6
StatePublished - Sep 2010

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics


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