Limit price

About: Limit price is a research topic. Over the lifetime, 4865 publications have been published within this topic receiving 148546 citations.

Price Level Determinacy Without Control of a Monetary Aggregate

Abstract: It is shown that the price level remains determinate even in the case of two kinds of radical money supply endogeneity -- an interest rate peg by the central bank, and a 'free banking' regime -- that are commonly supposed to imply loss of control of the price level. Price level determination under such regimes can be understood in terms of a 'fiscal theory of the price level,' according to which the equilibrium price level is that level that makes the real value of nominally denominated government liabilities equal to the present value of expected future government budget surpluses. The application of the fiscal theory of the price level to exogenous-money regimes is sketched as well.

Presidential Address: Asset Price Dynamics with Slow-Moving Capital

Abstract: I describe asset price dynamics caused by the slow movement of investment capital to trading opportunities. The pattern of price responses to supply or demand shocks typically involves a sharp reaction to the shock and a subsequent and more extended reversal. The amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect institutional impediments to immediate trade, such as search costs for trading counterparties or time to raise capital by intermediaries. I discuss special impediments to capital formation during the recent financial crisis that caused asset price distortions, which subsided afterward. After presenting examples of price reactions to supply shocks in normal market settings, I offer a simple illustrative model of price dynamics associated with slow-moving capital due to the presence of inattentive investors. I ADDRESS THE IMPLICATIONS for asset price dynamics of the apparent slow movement of investment capital to trading opportunities. The arrival of new capital to an investment opportunity can be delayed by fractions of a second in some markets, for example an electronic limit-order-book market for equities, or by months in other markets, such as that for catastrophe risk insurance. Accordingly, prices respond to supply or demand shocks with a sharp reaction because of the relatively small subset of capital (and thus risk-bearing capacity) that is immediately available to absorb a shock on short notice. Such a price impact is substantially reversed over time as additional capital becomes available. The amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect many sorts of attention costs to trade as well as institutional impediments to capital movement, such as search costs for trading

Menu Costs and the Neutrality of Money

Abstract: A model of endogenous price adjustment under money growth is presented. Firms follow (s,S) pricing policies, and price revisions are imperfectly synchronized. In the aggregate, price stickiness disappears, and money is neutral. The connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated. The results contrast with those obtained in models with exogenous fixed timing of price adjustment.

Price-cost margins and market structure

Abstract: In this thesis, the relationship between some aspects of industrial market structure and industry price-cost margins or profit-revenue ratios is investigated. This is done mainly by building mathematical models based upon the tenet of profit maximisation. Empirical tests of the hypotheses developed are carried out using regression analysis on recent UK data. After an introductory chapter, the arguments are developed by successively taking structural features into account. Thus initially, problems involved in relating the structure of established firms in an industry to price-cost margins are considered. Then the possibilities and problems of potential entry into an industry are opened up. After that, the power of buyers from and sellers to the industry are brought into partial account. Additional potentially relevant structural factors receive a more cursory treatment before the analysis passes to empirical testing. At every stage, the relevant established literature is reviewed. It is found theoretically that the price-cost margin may be related to two main aspects of market structure, the "Herfindahl" index and a bilateral power index developed here. However, the commonly included "entry barrier variables need not, under reasonable assumptions, be considered relevant. The empirical results lend support to the theoretical conclusions regarding the Herfindahl and bilateral power indices. The contribution to knowledge in the subject area achieved herein is (hopefully) mainly in the rigorous development and application of models which have, in general, previously been rather vaguely based upon commonsense extensions of the fundamentals of economic theory. In fact, the thesis consists to a large extent in the belief that industrial economic problems often considered as having theoretically indeterminate solutions may be profitably examined and "solved" rigorously, with the judicious use of restrictive assumptions.