Adjustment Costs, Uncertainty, and the Level of Activity

Louis Eeckhoudt and Nicolas Treich

Southern Economic Journal, 2003, vol. 69, issue 4, 990-999

Abstract: What is the effect of adjustment costs on economic activity? This is an important question that is still debated either at the political or the academic level. We consider a simple model where basically two effects come into play: Adjustment costs decrease current activity but may help maintain future activity. We examine their relative strength, first in a model with uncertain prices and then in a model with demand uncertainty (newsboy problem).

Date: 2003
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https://doi.org/10.1002/j.2325-8012.2003.tb00545.x

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Working Paper: Adjustment costs, uncertainty, and the level of activity (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:69:y:2003:i:4:p:990-999

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