Much of modern business cycle theory—and the policy prescriptions that accompany it—rest on the idea that something interferes with markets. After all, if markets are working efficiently, there isn’t anything that policy can do to improve matters. What that “something” is remains the great unknown in macroeconomics, but there is a common belief that price “stickiness” lies at the heart of the problem.
While economists wrestle with the question of what, exactly, causes prices to be sticky—that is, adjust more slowly than they would in the absence of whatever is getting in their way—some have taken on the tedious task of documenting the speed at which prices adjust. And, as you might imagine, it turns out that some prices adjust very quickly while others adjust at a glacial pace.