Capital-market consequences of asymmetric output-price rigidities

Jin Xie

Journal of Monetary Economics, 2020, vol. 114, issue C, 221-239

Abstract: Firms adjust output prices to cost decreases with a delay relative to cost increases. I document firms’ operating income becomes less persistent when their input costs decrease than when their costs increase. The stocks of firms slowly cutting output prices due to asymmetric output-price rigidities also experience high stock return volatility, and their CEOs more frequently manage expectations of financial analysts. I show these results are consistent with a New Keynesian model with trend inflation.

Keywords: New Keynesian economics; Downward nominal price rigidities; Trend inflation; Earnings persistence; Stock market (search for similar items in EconPapers)
JEL-codes: E31 G14 M41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:114:y:2020:i:c:p:221-239

DOI: 10.1016/j.jmoneco.2019.03.009

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