Price and Quantity Adjustment over the Business Cycle: Evidence from Survey Data

V Bhaskar, Stephen Machin and Gavin Reid

Oxford Economic Papers, 1993, vol. 45, issue 2, 257-68

Abstract: This paper analyzes responses to an administered questionnaire in which owner-managers of seventy-three small firms were asked how they would respond to booms and recessions. Responses suggest that quantity adjustments to demand fluctuations are more important than price adjustments. There is also evidence that downward price adjustments are more likely in recessions than are upward price changes in booms, but this asymmetry is absent in firms with cash flow problems. This tallies with the predictions of a recent customer markets model. However, the asymmetry in quantity adjustments appears to move in the opposite direction, with more adjustments taking place in booms. Copyright 1993 by Royal Economic Society.

Date: 1993
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