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

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Author Info
LEIF DANZIGER

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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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File URL: http://www.blackwell-synergy.com/doi/abs/10.1093/ei/cbl006
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Publisher 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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  3. Andersen, Torben M & Toulemonde, Eric, 2004. "Adapting Prices or Quantities in the Presence of Adjustment Costs?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 177-96, April.
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  16. Fiorito, Riccardo & Kollintzas, Tryphon, 1994. "Stylized facts of business cycles in the G7 from a real business cycles perspective," European Economic Review, Elsevier, vol. 38(2), pages 235-269, February. [Downloadable!] (restricted)
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  18. Naish, Howard F, 1986. "Price Adjustment Costs and the Output-Inflation Trade-off," Economica, London School of Economics and Political Science, vol. 53(210), pages 219-30, May. [Downloadable!] (restricted)
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  20. Benabou, Roland & Konieczny, Jerzy D, 1994. "On Inflation and Output with Costly Price Changes: A Simple Unifying Result," American Economic Review, American Economic Association, vol. 84(1), pages 290-97, March. [Downloadable!] (restricted)
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  24. Danziger, Leif, 1988. "Costs of Price Adjustment and the Welfare Economics of Inflation and Disinflation," American Economic Review, American Economic Association, vol. 78(4), pages 633-46, September. [Downloadable!] (restricted)
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