INFLATION AND ASYMMETRIC OUTPUT ADJUSTMENTS BY FIRMS |
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Authors: | ROBERT A. BUCKLE JOHN A. CARLSON |
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Affiliation: | Associate Professor, School of Economics and Finance, Victoria University of Wellington Phone 64-4-472-1000, Fax 64-4-495-5014 E-mail;Loeb Professor of Economics, Purdue University, West Lafayette, Ind., Phone 1–765-494-4450 Fax 1–765-494-9658 E-mail |
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Abstract: | Using ordered probit analyses of a unique micro data set, we find evidence of output asymmetry that is systematically related to inflation and to price asymmetry. As predicted by theory, firms are more likely at higher rates of inflation to raise prices in response to positive cost and demand shocks and less likely to lower prices in response to negative cost and demand shocks. The expected effects of higher inflation on output asymmetry, however, come primarily from cost and demand increases and to a lesser (and statistically insignificant) extent from cost and demand decreases. (JEL E3, D4) |
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