The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

s-S Models

  • John Leahy
Reference work entry


The s-S model is the canonical model of infrequent and discrete action. It has been used to explain inertia in durable goods, investment, money demand, and cash management, and to provide microfoundations for price stickiness and the real effects of money. In the model, fixed costs make small adjustment impractical. Agents allow their state to drift in response to shocks until it reaches an adjustment trigger before setting it to a target value. This article reviews the microeconomic comparative statics of the optimal s-S policy, as well as the implications of discrete individual adjustment aggregate dynamics.


Adjustment costs Adverse selection Arrow, K. J. Curse of dimensionality Frictions Inventory theory Markov processes Marschak, J. Microfoundations Neutrality of money One-sided rules s-S models State dependence Sticky prices Taylor’s theorem Two-sided rules 

JEL Classifications

C6 E22 
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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • John Leahy
    • 1
  1. 1.