Fallacy of Composition: How long is a Price Sticky?

 

Opening Quizzes. How long is the price, the wage or the interest rate sticky? 

<Group 1> The price of a good or a service (answer)

Grocery (a week), wine (a month), engine oil (a quarter), haircut (a year), dental treatment (three years), DMV service (10 years)

<Group 2> The wage rate

Daily bread-earner (a day), weekly contractor (a week), the factory worker (a fortnight), blue-berry picker (a month), cabbage-field worker (a quarter), cotton-field worker (two quarters) office worker (a year), housemaid (five years), slave (lifetime)

<Group 3> The rental rate of a site

Hotel room (a day), motel room (a week), summer camp (a quarter), cottage around a working-holiday farm (a year), urban apartment (two years), office building (five years), warehouse (10 years), charted land (99 years)

<Group 4> The rental rate of capital stock

Coin-car cleaner (a minute), washing machine (10 minutes), monthly car rental (a month), quarterly robot rental (a quarter), printing press rental for good (indefinite)

<Group 5> The rental rate of credit

Monthly time deposit (a month), quarterly loan (a quarter), FRN (a month or a quarter as contracted), yearly fixed-rate loan (a year), bullet bond (lifetime)

 

Closing Quiz. There is only one quarterly GDP per quarter. There is only one annual GDP per annum. With that said how long is the quarterly price level sticky? How long is the annual price level sticky?

            Well, your guess is as good as mine.

 

See I Told You So. All prices are sticky on their own right. In the first place, the price in the market and the price level in the economy are an average to be found ex post at the end of the respective accounting period.

             Exogenous to the war room, there cannot be such a thing as Case B, Case C and the like; neither the price pB or pC nor the price level PB  or PC. In the first place, economic life is competition in the battle field, really, analogously, metaphorically and nominally. In the second place, life is never like a crawling or a climbing on a spatial line (L) but it is a living on the time line (T), really, analogously, metaphorically and nominally.

 

No Rule without an Exception. We when in macroeconomics (e.g. Gregory Mankiw, Macroeconomics) often find the price level is “sticky” only on the fraction of s and “flexible” on the rest 1-s so that we may get this upward-sloping aggregate supply curve: P= s∙EP+ (1– s)∙[P+ a∙(Y– Y*)].

Question 1. When Y is the quarterly GDP, what period does P stand for, the quarter, the whole year, the indefinite or the eventual? Or else, the very moment of drawing the AS-AD model?

             What about EP?

Question 2. When Y is the annual GDP, what period does P stand for, the quarter, the whole year, Eternal, or the moment? What about EP?

The Rest of Us: The quarterly price level is sticky in the quarter but flexible over the year of four quarters. We would never know in what principles the fraction s were come by. Neither would we do how EP were measured, conceptually, practically, virtually and “empirically.”






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