On Inflation and Output with Costly Price Changes: A Simple Unifying Result
We analyze the effect of inflation on the average output of monopolistic firms facing a small fixed cost of changing nominal prices. Using Taylor expansions, we derive a general closed-form solution for the slope of the long-run Phillips curve. This very simple, unifying formula allows us to evaluate and clarify the role of three key factors: the asymmetry of the profit function, the convexity of the demand function, and the discount rate. These partial equilibrium effects remain important components of any general equilibrium model with (s,S) pricing.
|Date of creation:||May 1993|
|Date of revision:|
|Publication status:||published as American Economic Review, vol.84, March 1994, pp.290-297.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Konieczny, Jerzy D, 1990. "Inflation, Output and Labour Productivity When Prices Are Changed Infrequently," Economica, London School of Economics and Political Science, vol. 57(226), pages 201-18, May.
- Peter A. Diamond, 1988.
"Search, Sticky Prices, and Inflation,"
509, Massachusetts Institute of Technology (MIT), Department of Economics.
- Kuran, Timur, 1986. "Price Adjustment Costs, Anticipated Inflation, and Output," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 407-18, May.
- Rotemberg, Julio J, 1983. "Aggregate Consequences of Fixed Costs of Price Adjustment [Sticky Prices and Disequilibrium Adjustment in a Rational Model of the Inflationary Process]," American Economic Review, American Economic Association, vol. 73(3), pages 433-36, June.
- Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 287-303, June.
- Danziger, Leif, 1988. "Costs of Price Adjustment and the Welfare Economics of Inflation and Disinflation," American Economic Review, American Economic Association, vol. 78(4), pages 633-46, September.
- Dixit, Avinash, 1991. "Analytical Approximations in Models of Hysteresis," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 141-51, January.
- Benabou, Roland, 1992. "Inflation and Efficiency in Search Markets," Review of Economic Studies, Wiley Blackwell, vol. 59(2), pages 299-329, April.
- Benabou, Roland, 1988. "Search, Price Setting and Inflation," Review of Economic Studies, Wiley Blackwell, vol. 55(3), pages 353-76, July.
- Mussa, Michael, 1981. "Sticky Prices and Disequilibrium Adjustment in a Rational Model of the Inflationary Process," American Economic Review, American Economic Association, vol. 71(5), pages 1020-27, December.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberte:0135. 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: ()
If references are entirely missing, you can add them using this form.