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Asymmetric Adjustments of Price and Output

  • Tinsley, P A
  • Krieger, Reva

Classical theories predict rapid price adjustments, which are observed in inflationary episodes; Keynesian theories of sticky prices predict sluggish price responses, which are observed in contractions. The authors attempt to reconcile these observations in a model with asymmetries in producer price and output adjustments. Analysis of SIC two-digit industry data indicates production frequently exhibits negative asymmetry--shortfalls from trend are larger than positive deviations--whereas price often displays positive asymmetry. Evidence supporting two rational motives for asymmetric pricing is presented, but causal interactions between output and price asymmetries are not resolved. Copyright 1997 by Oxford University Press.

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Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 35 (1997)
Issue (Month): 3 (July)
Pages: 631-52

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Handle: RePEc:oup:ecinqu:v:35:y:1997:i:3:p:631-52
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