PRICE FLEXIBILITY AND OUTPUT VOLATILITY UNDER MENU COSTS

Nam Vu

Macroeconomic Dynamics, 2021, vol. 25, issue 8, 2180-2203

Abstract: This paper studies the implications of price flexibility on output volatility under menu costs and finds price flexibility to be output-destabilizing under supply shocks, but not necessarily so under demand shocks. We illustrate that such a result hinges on the extent to which firms can adjust along both the intensive and the extensive margins, the latter of which is often absent in the literature.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:25:y:2021:i:8:p:2180-2203_9

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