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The Effect of Nominal Demand Shocks on Manufacturing Output: Evidence from Disaggregated Australian Data

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  • NILSS OLEKALNS

Abstract

The menu costs model predicts that during times of rapid inflation firms are less likely to vary output in response to changes in nominal aggregate demand. This paper tests the proposition using a disaggregated sample of Australian three‐digit ASIC manufacturing industries. The results show that a significant number of Australian industries exhibit behaviour that is consistent with this prediction. In addition, the results show that the variability of inflation and changes to the import penetration ratio also influence the response of output to nominal demand changes.

Suggested Citation

  • Nilss Olekalns, 1995. "The Effect of Nominal Demand Shocks on Manufacturing Output: Evidence from Disaggregated Australian Data," The Economic Record, The Economic Society of Australia, vol. 71(1), pages 66-76, March.
    • Handle: RePEc:bla:ecorec:v:71:y:1995:i:1:p:66-76
    DOI: 10.1111/j.1475-4932.1995.tb01872.x
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    References listed on IDEAS

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    1. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(2), pages 529-538.
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    3. Oxley, Les & McAleer, Michael, 1993. "Econometric Issues in Macroeconomic Models with Generated Regressors," Journal of Economic Surveys, Wiley Blackwell, vol. 7(1), pages 1-40.
    4. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-247, February.
    5. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    6. Harry Bloch, 1992. "Pricing in Australian Manufacturing," The Economic Record, The Economic Society of Australia, vol. 68(4), pages 365-376, December.
    7. DeFina, Robert H, 1991. "International Evidence on a New Keynesian Theory of the Output-Inflation Trade-Off," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 410-422, August.
    8. Dennis W. Jansen, 1989. "Does inflation uncertainty affect output growth? Further evidence," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 43-54.
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    Cited by:

    1. Karras, Georgios & Stokes, Houston H., 1999. "Why are the effects of money-supply shocks asymmetric? Evidence from prices, consumption, and investment," Journal of Macroeconomics, Elsevier, vol. 21(4), pages 713-727.
    2. Harry Bloch & Michael Olive, 1999. "Cyclical and Competitive Influences on Pricing in Australian Manufacturing," The Economic Record, The Economic Society of Australia, vol. 75(3), pages 268-279, September.
    3. 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.

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