Asymmetric Price Adjustment and Economic Fluctuations
This paper considers a possible explanation for asymmetric adjustment of nominal prices. The authors present a menu-cost model in which positive trend inflation causes firms' relative prices to decline automatically between price adjustments. In this environment, shocks that raise firms' desired prices trigger larger price responses than shocks that lower desired prices. The authors use this model of asymmetric adjustment to address three issues in macroeconomics: the effects of aggregate demand, the effects of sectoral shocks, and the optimal rate of inflation. Copyright 1994 by Royal Economic Society.
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Volume (Year): 104 (1994)
Issue (Month): 423 (March)
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- J. Bradford De Long & Lawrence H. Summers, . "How Does Macroeconomic Policy Matter?," J. Bradford De Long's Working Papers _130, University of California at Berkeley, Economics Department.
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- Kimball, Miles S., 1989. "The effect of demand uncertainty on a precommitted monopoly price," Economics Letters, Elsevier, vol. 30(1), pages 1-5.
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- repec:fth:harver:1418 is not listed on IDEAS
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