CAN MORE FREQUENT PRICE CHANGES LEAD TO PRICE INERTIA - NONNEUTRALITIES IN A STATE-DEPENDENT PRICING CONTEST

We present a generalized (s,S) state-dependent pricing model in which menus are changed, not just in response to price misalignment, but als o in response to factors such as changing product mix. Our model gener ates aggregate price inertia, and so reverses an important earlier res ult on neutrality in state-dependent pricing contexts in more general settings than previous modifications. It also provides a compromise be tween state-and time-dependent rules, gives a glimpse at the dynamic i mplications of menu cost models, and reproduces two recent results: on e on Phillips curve slopes, and one on asymmetric fluctuations.