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Capital-market consequences of asymmetric output-price rigidities

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  • Xie, Jin

Abstract

Firms adjust output prices to cost decreases with a delay relative to cost increases. I document firms’ operating income becomes less persistent when their input costs decrease than when their costs increase. The stocks of firms slowly cutting output prices due to asymmetric output-price rigidities also experience high stock return volatility, and their CEOs more frequently manage expectations of financial analysts. I show these results are consistent with a New Keynesian model with trend inflation.

Suggested Citation

  • Xie, Jin, 2020. "Capital-market consequences of asymmetric output-price rigidities," Journal of Monetary Economics, Elsevier, vol. 114(C), pages 221-239.
    • Handle: RePEc:eee:moneco:v:114:y:2020:i:c:p:221-239
    DOI: 10.1016/j.jmoneco.2019.03.009
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    More about this item

    Keywords

    New Keynesian economics; Downward nominal price rigidities; Trend inflation; Earnings persistence; Stock market;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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