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The asymmetric effects of demand shocks: international evidence on determinants and implications

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  • Magda Kandil

Abstract

The analysis focuses on the asymmetric effects of demand shocks. The evidence across a sample of 19 industrial countries differentiates the effects of expansionary and contractionary aggregate demand shocks on real output growth and nominal wage and price inflation. The difference appears consistent with a kinked supply curve that is dependent on the asymmetric flexibility of wages and/or prices across countries. Furthermore, the evidence does not support the endogeneity of asymmetric nominal flexibility with respect to demand variability or trend price inflation across countries. On average, across countries, demand variability increases nominal wage and price inflation relative to deflation, while exacerbating output contraction relative to expansion. The apparent trade-off between changes in real and nominal trends provides further support to the supply side explanation of asymmetry.

Suggested Citation

  • Magda Kandil, 2010. "The asymmetric effects of demand shocks: international evidence on determinants and implications," Applied Economics, Taylor & Francis Journals, vol. 42(17), pages 2127-2145.
  • Handle: RePEc:taf:applec:v:42:y:2010:i:17:p:2127-2145
    DOI: 10.1080/00036840701765502
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    Cited by:

    1. 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.
    2. Ahmad Naimzada & Nicolò Pecora & Fabio Tramontana, 2019. "A cobweb model with elements from prospect theory," Journal of Evolutionary Economics, Springer, vol. 29(2), pages 763-778, April.

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