On the Output-Inflation Relationship when Price and Quantity Adjustments are Costly

Leif Danziger () and Claus Thustrup Hansen
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Claus Thustrup Hansen: Institute of Economics and EPRU, University of Copenhagen

No 116, Cahiers de recherche CREFE / CREFE Working Papers from CREFE, Université du Québec à Montréal

Abstract: A vast literature analyzes the real effects of price-adjustment costs assuming that quantity adjustments are costless. In this paper, we analyze whether the presence of quantity-adjustments costs, which presumably are significant, change the traditional results on the impact of inflation. In particular, recent findings suggest that quantity-adjustment costs may remove the linkage between output and inflation. We show that this is not the case when inflation is anticipated. On the contrary, quantity-adjustment costs may significantly amplify the consequences of price-adjustment costs.

Une vaste littérature analyse les effets réels de coûts d'ajustement des prix en supposant que les ajustements de quantités sont sans coûts. Dans ce papier, nous analysons si la présence de coûts d'ajustement des quantités, qui sont probablement significatifs, change le résultat traditionnel sur l'impact de l'inflation. En particulier, des résultats récents suggèrent que les coûts d'ajustement des quantités peuvent supprimer le lien entre inflation et production. Nous montrons que cela n'est pas le cas lorsque l'inflation est anticipée. Au contraire, les coûts d'ajustement des quantités peuvent amplifier significativement les conséquences des coûts d'ajustement des prix.

Keywords: Output-Inflation Relationship; Menu Costs; Quantity-Adjustment Costs (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Date: Written 2000-04
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Related works:
Working Paper: On the Output-Inflation Relationship when Price and Quantity Adjustments are Costly (2000)
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