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Inflation and Asymmetric Price Adjustment

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  • Robert A. Buckle
  • John A. Carlson

Abstract

Using a unique micro data set, we find pervasive evidence of price asymmetry that is systematically related to inflation. An ordered probit model of pricing by manufacturing, building and merchandising firms shows that inflation: (i) increases the probability of a price increase in response to cost increases and (ii) decreases the probability of a price decrease in response to decreases in demand. Predicted inflation-induced asymmetries also show up for price responses to cost decreases and demand increases but not as overwhelmingly. Similar asymmetries are evident in firm's expectations of price changes, with a slight optimistic bias relative to actual changes. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/rest.2000.82.1.157
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Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 82 (2000)
Issue (Month): 1 (February)
Pages: 157-160

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Handle: RePEc:tpr:restat:v:82:y:2000:i:1:p:157-160

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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. Claire Loupias & Patrick Sevestre, 2013. "Costs, Demand, and Producer Price Changes," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 315-327, March.
  2. Mikael Carlsson & Oskar Nordstrom Skans, 2012. "Evaluating Microfoundations for Aggregate Price Rigidities: Evidence from Matched Firm-Level Data on Product Prices and Unit Labor Cost," American Economic Review, American Economic Association, vol. 102(4), pages 1571-95, June.
  3. David Law & Bob Buckle & Dean Hyslop, 2006. "Toward a Model of Firm Productivity Dynamics," Treasury Working Paper Series 06/11, New Zealand Treasury.
  4. V. Bhaskar, 2002. "Asymmetric Price Adjustment: Micro-foundations and Macroeconomic Implications," Economics Discussion Papers 547, University of Essex, Department of Economics.
  5. Raghbendra Jha & Hari K. Nagarajan, 2002. "Noisy Vertical Markets," ASARC Working Papers 2002-04, The Australian National University, Australia South Asia Research Centre.
  6. Monia Ben-Kaabia & José M. Gil & Mehrez Ameur, 2005. "Vertical integration and non-linear price adjustments: The Spanish poultry sector," Agribusiness, John Wiley & Sons, Ltd., vol. 21(2), pages 253-271.
  7. Brian Silverstone, 2000. "Respondent Dynamics within the NZIER Survey of Business Opinion: An Introductory Perspective," Working Papers in Economics 00/03, University of Waikato, Department of Economics.
  8. Rotheli, Tobias F., 2005. "The illusion of over-optimism in survey data: the case of manufacturers' selling prices," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 34(2), pages 151-159, March.
  9. Robert A Buckle & David Haugh & Peter Thomson, 2002. "Growth and volatility regime switching models for New Zealand GDP data," Treasury Working Paper Series 02/08, New Zealand Treasury.
  10. Anne-Marie Brook & Özer Karagedikli & Dean Scrimgeour, 2002. "An optimal inflation target for New Zealand: lessons from the literature," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 65, September.

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