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Inflation and Asymmetric Price Adjustment

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  • Robert A. Buckle
  • John A. Carlson

Abstract

Using a unique micro data set, we find pervasive evidence of price asymmetry that is systematically related to inflation. An ordered probit model of pricing by manufacturing, building and merchandising firms shows that inflation: (i) increases the probability of a price increase in response to cost increases and (ii) decreases the probability of a price decrease in response to decreases in demand. Predicted inflation-induced asymmetries also show up for price responses to cost decreases and demand increases but not as overwhelmingly. Similar asymmetries are evident in firm's expectations of price changes, with a slight optimistic bias relative to actual changes. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • Robert A. Buckle & John A. Carlson, 2000. "Inflation and Asymmetric Price Adjustment," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 157-160, February.
  • Handle: RePEc:tpr:restat:v:82:y:2000:i:1:p:157-160
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    Cited by:

    1. Mikael Carlsson & Oskar Nordstrom Skans, 2012. "Evaluating Microfoundations for Aggregate Price Rigidities: Evidence from Matched Firm-Level Data on Product Prices and Unit Labor Cost," American Economic Review, American Economic Association, pages 1571-1595.
    2. Raghbendra Jha & Hari K. Nagarajan, 2002. "Noisy Vertical Markets," ASARC Working Papers 2002-04, The Australian National University, Australia South Asia Research Centre.
    3. Mohammad J Alam & Raghbendra Jha, 2016. "Asymmetric threshold vertical price transmission in wheat and flour markets in Dhaka (Bangladesh): seemingly unrelated regression analysis," ASARC Working Papers 2016-03, The Australian National University, Australia South Asia Research Centre.
    4. Mikael Carlsson & Oskar Nordstrom Skans, 2012. "Evaluating Microfoundations for Aggregate Price Rigidities: Evidence from Matched Firm-Level Data on Product Prices and Unit Labor Cost," American Economic Review, American Economic Association, pages 1571-1595.
    5. Rotheli, Tobias F., 2005. "The illusion of over-optimism in survey data: the case of manufacturers' selling prices," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 34(2), pages 151-159, March.
    6. Monia Ben-Kaabia & José M. Gil & Mehrez Ameur, 2005. "Vertical integration and non-linear price adjustments: The Spanish poultry sector," Agribusiness, John Wiley & Sons, Ltd., vol. 21(2), pages 253-271.
    7. Muthoo, Abhinay, 2004. "A model of the origins of basic property rights," Games and Economic Behavior, Elsevier, pages 288-312.
    8. Robert A Buckle & David Haugh & Peter Thomson, 2002. "Growth and volatility regime switching models for New Zealand GDP data," Treasury Working Paper Series 02/08, New Zealand Treasury.
    9. David Law & Bob Buckle & Dean Hyslop, 2006. "Toward a Model of Firm Productivity Dynamics," Treasury Working Paper Series 06/11, New Zealand Treasury.
    10. Aysoy, Cevriye & Kirli, Duygu Halim & Tumen, Semih, 2015. "How does a shorter supply chain affect pricing of fresh food? Evidence from a natural experiment," Food Policy, Elsevier, vol. 57(C), pages 104-113.
    11. Claire Loupias & Patrick Sevestre, 2013. "Costs, Demand, and Producer Price Changes," The Review of Economics and Statistics, MIT Press, pages 315-327.
    12. Anne-Marie Brook & Özer Karagedikli & Dean Scrimgeour, 2002. "An optimal inflation target for New Zealand: lessons from the literature," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 65, September.
    13. Carlsson, Mikael, 2014. "Selection Effects in Producer-Price Setting," Working Paper Series 2014:6, Uppsala University, Department of Economics.
    14. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, pages 466-502.
    15. Claire Loupias & Patrick Sevestre, 2013. "Costs, Demand, and Producer Price Changes," The Review of Economics and Statistics, MIT Press, pages 315-327.
    16. Brian Silverstone, 2000. "Respondent Dynamics within the NZIER Survey of Business Opinion: An Introductory Perspective," Working Papers in Economics 00/03, University of Waikato.
    17. Daniele CAVICCHIOLI, 2013. "Detecting market power along food supply chains: evidence from the fluid milk sector in Italy," Departmental Working Papers 2013-01, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano, revised 30 Jan 2013.
    18. Ariun-Erdene Bayarjargal, 2016. "Economic growth and income inequality: asymmetric response of top income shares to growth volatility," Departmental Working Papers 2016-09, The Australian National University, Arndt-Corden Department of Economics.
    19. Vinícius dos Santos Cerqueira & Márcio Bruno Ribeiro & Thiago Sevilhano Martinez, 2011. "Propagação Assimétrica de Choques Monetários na Economia Brasileira: Evidências com Base em um Modelo Vetorial não Linear de Transição Suave," Discussion Papers 1639, Instituto de Pesquisa Econômica Aplicada - IPEA.

    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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