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Output Effects of Inflation with Fixed Price- and Quantity-Adjustment Costs

  • Leif Danziger

With fixed costs of price and quantity adjustment, output effects of inflation depend on the elasticity of the firm’s marginal real revenue. If the elasticity always exceeds minus unity, then output decreases with inflation, while if the elasticity is always less than minus unity, then output increases with inflation. In the special case that the elasticity always equals minus unity, then output is independent of inflation. This is the case if demand is derived from a log-quadratic utility function.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2005/wp-cesifo-2005-09/cesifo1_wp1538.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1538.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1538
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