A Field Study of Price Setting and the Inflationary Process

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9810362 Bewley This grant supports interviews of numerous business people, salesmen, purchasing agents, and distributors in many industries in order to learn how product prices are set and above all how they adapt to changes in costs and demand. The emphasis will not be on the quantitative description of price behavior but on who makes pricing decisions, how buyers and sellers interact, and, above all, why decisions are made. The interviewer will also inquire about how inflationary expectations are formed and how these affect pricing decisions. The goal of this project is to contribute to macroeconomic policy analysis by providing knowledge of the microeconomic mechanisms linking inflation to the general level of economic activity. The project will also generate theoretical and empirical hypotheses that could be tested using other kinds of information, and especially quantitative data.