Price Rigidity and Flexibility: New Empirical Evidence Introduction to the Special Issue

The marketplace, along with its price system, is the single most important institution in a western-style free enterprise economy. The ability of prices to adjust to changes in supply and demand conditions enables the market to function efficiently and lies behind the magical invisible hand mechanism. To the behaviour of prices and in particular to the ability of prices to adjust to changes in market conditions, therefore, have fundamental implications for many key issues in many areas of both microeconomics as well as macroeconomics. It is, therefore, critical to study and understand whether there are barriers to price adjustments, what are the nature of these barriers, how the barriers lead to price rigidity, what are possible implications of these rigidities, etc. This introductory essay briefly summarizes the fourteen empirical studies of price rigidity that are included in this special issue. * Correspondence: Department of Economics, Bar-Ilan University, Ramat-Gan 52900, ISRAEL; Tel: +972-3-531-8331; Fax: +972-3-535-3180; Email: [email protected]. Last Revision: September 3, 2006 JEL Codes: D21, D40, E12, E31, E50, E52, E58, L11, L16, M20, M30