Sticky prices do a lot of the work in New Keynesian economics. The business cycle is largely a function of the housing and auto industries. No one disputes that home prices are sticky. Importantly, most mortgages are sticky as well.
However, for Autos. Hmm? This observation is hard to square with fundamental stickiness. From MarketWatch
High gasoline prices are allowing auto makers to slash incentives on their smaller vehicles as customers clamor for more-fuel-efficient cars, bringing overall incentives to a new low in May, according to data from Edmunds.com.
The industry gave out an average $2,094 for each vehicle it sold in May, down 0.7% from April. Edmunds estimated overall incentive spending this month totaled about $2.3 billion, down 5.8% from April.
Manufacturer incentive spending for compact cars dropped a faster 23% in the past month while subcompact car incentives fell 14%. Edmunds reported last month that average auto incentives were at their lowest levels since 2005.