IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v31y1999i7p825-839.html
   My bibliography  Save this article

The asymmetric stabilizing effects of price flexibility: historical evidence and implications

Author

Listed:
  • Magda Kandil

Abstract

The evidence of business cycles across a sample of industrial countries indicates asymmetry in the output and price adjustments to aggregate demand shocks in the pre- and post-war periods. Upward price flexibility is significant in moderating output fluctuations across countries in the pre- and post-war periods. Nonetheless, the effect of upward price flexibility in accelerating trend price inflation is more evident across countries in the post-war period compared to the pre-war period. The combined evidence is consistent with a steeper supply curve in the face of expansionary demand shocks that increases the stabilizing effect of upward price flexibility. In contrast, a flatter supply curve in the face of negative demand shocks has countered the stabilizing function of downward price flexibility, which appears insignificant across countries in the pre- and post-war periods. In addition, a slower demand response to price change during recessions has further reinforced the contractionary effect on output despite a large reduction in price inflation across countries in the pre-war period. Apparent differences in the implications of upward and downward price flexibility point to the importance of policy intervention to moderate output contraction during recessions and price inflation during expansions.

Suggested Citation

  • Magda Kandil, 1999. "The asymmetric stabilizing effects of price flexibility: historical evidence and implications," Applied Economics, Taylor & Francis Journals, vol. 31(7), pages 825-839.
  • Handle: RePEc:taf:applec:v:31:y:1999:i:7:p:825-839 DOI: 10.1080/000368499323797
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/000368499323797
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Richard E. Quandt, 1986. "Betting and Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 201-207.
    2. Alderfer, Clayton P & Bierman, Harold, Jr, 1970. "Choices with Risk: Beyond the Mean and Variance," The Journal of Business, University of Chicago Press, vol. 43(3), pages 341-353, July.
    3. J. Hirshleifer, 1966. "Investment Decision Under Uncertainty: Applications of the State-Preference Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 80(2), pages 252-277.
    4. Tsiang, S C, 1972. "The Rationale of the Mean-Standard Deviation Analysis, Skewness Preference, and the Demand for Money," American Economic Review, American Economic Association, vol. 62(3), pages 354-371, June.
    5. Fred D. Arditti, 1967. "Risk And The Required Return On Equity," Journal of Finance, American Finance Association, vol. 22(1), pages 19-36, March.
    6. Bailey, Martin J & Olson, Mancur & Wonnacott, Paul, 1980. "The Marginal Utility of Income Does not Increase: Borrowing, Lending, and Friedman-Savage Gambles," American Economic Review, American Economic Association, vol. 70(3), pages 372-379, June.
    7. Joseph Golec & Maurry Tamarkin, 1998. "Bettors Love Skewness, Not Risk, at the Horse Track," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 205-225, February.
    8. Asch, Peter & Quandt, Richard E, 1987. "Efficiency and Profitability in Exotic Bets," Economica, London School of Economics and Political Science, vol. 54(215), pages 289-298, August.
    9. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-430, June.
    10. Gandar, John, et al, 1988. " Testing Rationality in the Point Spread Betting Market," Journal of Finance, American Finance Association, vol. 43(4), pages 995-1008, September.
    11. Woodland, Linda M & Woodland, Bill M, 1994. " Market Efficiency and the Favorite-Longshot Bias: The Baseball Betting Market," Journal of Finance, American Finance Association, vol. 49(1), pages 269-279, March.
    12. Bird, Ron & McCrae, Michael & Beggs, John J, 1987. "Are Gamblers Really Risk Takers?," Australian Economic Papers, Wiley Blackwell, vol. 26(49), pages 237-253, December.
    13. Martin Weitzman, 2008. "Utility Analysis And Group Behavior An Empirical Study," World Scientific Book Chapters,in: Efficiency Of Racetrack Betting Markets, chapter 9, pages 47-55 World Scientific Publishing Co. Pte. Ltd..
    14. Francis, Jack Clark, 1975. "Skewness and Investors' Decisions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(01), pages 163-172, March.
    15. Markowitz, Harry M, 1991. " Foundations of Portfolio Theory," Journal of Finance, American Finance Association, vol. 46(2), pages 469-477, June.
    16. Thaler, Richard H & Ziemba, William T, 1988. "Parimutuel Betting Markets: Racetracks and Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 161-174, Spring.
    17. Levy, H & Markowtiz, H M, 1979. "Approximating Expected Utility by a Function of Mean and Variance," American Economic Review, American Economic Association, vol. 69(3), pages 308-317, June.
    18. Woodland, Bill M & Woodland, Linda M, 1991. "The Effects of Risk Aversion on Wagering: Point Spread versus Odds," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 638-653, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kandil, Magda, 2009. "Demand-side stabilization policies: What is the evidence of their potential?," Journal of Economics and Business, Elsevier, vol. 61(3), pages 261-276.
    2. Magda Kandil, 2009. "Public Spending and the Macroeconomy: Evidence from Developing and Developed Countries," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 8(2), pages 133-158, August.
    3. Magda Kandil, 2002. "Asymmetry In Economic Fluctuations In The Us Economy: The Pre-War And The 1946-1991 Periods Compared," International Economic Journal, Taylor & Francis Journals, vol. 16(1), pages 21-42.
    4. Ahrens, Steffen & Pirschel, Inske & Snower, Dennis J., 2017. "A theory of price adjustment under loss aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 78-95.
    5. repec:eee:riibaf:v:42:y:2017:i:c:p:1254-1273 is not listed on IDEAS
    6. Jim Granato & Melody Lo & M. C. Sunny Wong, 2007. "A note on Romer's openness-inflation relation: the responsiveness of AS and AD to economic openness and monetary policy," Applied Economics, Taylor & Francis Journals, vol. 39(2), pages 191-197.
    7. Kandil, Magda & Mirzaie, Aghdas, 2002. "Exchange rate fluctuations and disaggregated economic activity in the US: theory and evidence," Journal of International Money and Finance, Elsevier, vol. 21(1), pages 1-31, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:31:y:1999:i:7:p:825-839. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.