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Asymmetric Adjustments of Price and Output

  • Peter A. Tinsley

    ()

    (Federal Reserve Board, Washington)

  • Reva Krieger

    (International Monetary Fund, Washington)

Asymmetries in price adjustment can reconcile contrasts between rapid price movements in inflationary episodes, consistent with classical theories of flexible pricing, and sluggish price responses in contractions, consistent with Keynesian theories of sticky price adjustments. Both classical and Keynesian characterisations may be describing price behaviour in different stages of business cycles if producers respond asymmetrically to positive and negative deviations from trends. The case for asymmetric pricing is examined in four stages: A search for asymmetries in the outputs of SIC two-digit industries finds that negative asymmetries in trend deviations are more pronounced in real outputs than in nominal outputs. This suggests and offsetting positive asymmetry in industry prices where below-trend prices are more readily raised than above-trend prices are lowered.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 1996 with number _059.

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Handle: RePEc:sce:scecf6:_059
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