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Output Effects Of Inflation With Fixed Price- And Quantity-Adjustment Costs

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  • LEIF DANZIGER

Abstract

"This article examines how the aggregate production varies with inflation when there are fixed price- and quantity-adjustment costs. It shows that such variation is determined by the elasticity of the firms' marginal real revenue with respect to demand. The aggregate production decreases with inflation if this elasticity always exceeds minus unity, whereas the aggregate production increases with inflation if the elasticity is always less than minus unity. The aggregate production is independent of inflation in the special case that the elasticity always equals minus unity. The latter occurs if demand is derived from a log-quadratic utility function." ("JEL" E31) Copyright 2006 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 45 (2007)
Issue (Month): 1 (01)
Pages: 115-120

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Handle: RePEc:bla:ecinqu:v:45:y:2007:i:1:p:115-120

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Cited by:
  1. Alex Ho, Wai-Yip & Yetman, James, 2008. "The long-run output-inflation trade-off with menu costs," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 19(3), pages 261-273, December.
  2. Daniel Levy & Dongwon Lee & Haipeng Allan Chen & Robert J. Kauffman & Mark Bergen, 2007. "Price Points and Price Rigidity," Working Paper Series, The Rimini Centre for Economic Analysis 04-07, The Rimini Centre for Economic Analysis, revised Jul 2007.

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