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Inflation, Output and Labour Productivity When Prices Are Changed Infrequently

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Author Info
Konieczny, Jerzy D

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Abstract

When prices are changed infrequently, the effect of inflation on output depends on the form of profit and demand functions. This paper provides a general taxonomy. At small inflation rates, output falls (rises; stays the same) if the demand function is concave (convex; linear) in terms of the log of real price. This holds when the frequency of price changes is fixed (in case of a catalogue firm) as well as when it is chosen optimally (in case of a menu cost firm), with fixed and variable price adjustments costs. With some specifications, inflation increases output, but reduces labor productivity. Copyright 1990 by The London School of Economics and Political Science.

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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 57 (1990)
Issue (Month): 226 (May)
Pages: 201-18
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Handle: RePEc:bla:econom:v:57:y:1990:i:226:p:201-18

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  1. Bill Russell, 2006. "Non-Stationary Inflation and the Markup: an Overview of the Research and some Implications for Policy," Discussion Papers 191, University of Dundee, Economic Studies. [Downloadable!]
  2. Ellingsen, Tore & Friberg, Richard & Hassler, John, 2006. "Menu Costs and Asymmetric Price Adjustment," CEPR Discussion Papers 5749, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Anindya BANERJEE & Bill RUSSEL, 2002. "Inflation Measures of the Markup," Economics Working Papers ECO2002/15, European University Institute. [Downloadable!]
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  4. Makoto Watanabe, 2006. "Inflation, Price Competition and Consumer Search Technology," Economics Working Papers we065623, Universidad Carlos III, Departamento de Economía. [Downloadable!]
    Other versions:
  5. Anindya Banerjee & Bill Russell, 2004. "Competition, the Lisbon Strategy and the Euro," Economics Working Papers ECO2004/32, European University Institute. [Downloadable!]
    Other versions:
  6. Roland Benabou & Jerzy Konieczny, 1993. "On Inflation and Output with Costly Price Changes: A Simple Unifying Result," NBER Technical Working Papers 0135, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Anindya BANERJEE & Paul MIZEN & Bill RUSSELL, 2002. "The Long-Run Relationship among Relative Price Variability, Inflation and the Markup," Economics Working Papers ECO2002/01, European University Institute. [Downloadable!]
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  8. Yu-Fu CHEN & Bill RUSSELL, 2002. "An Optimising Model of Price Adjustment with Missing Information," Economics Working Papers ECO2002/03, European University Institute. [Downloadable!]
    Other versions:
  9. Leif Danziger, 2005. "Output Effects of Inflation with Fixed Price- and Quantity-Adjustment Costs," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  10. Francisco Alcala, F. Israel Sancho, 2000. "Inflation and Factor Shares," UFAE and IAE Working Papers 460.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
  11. Danziger, Leif & Hansen, Claus Thustrup, 2000. "On the Output-Inflation Relationship when Price and Quantity Adjustments are Costly," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
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