EconPapers    
Economics at your fingertips  
 

Menu Costs and Asymmetric Price Adjustment

Tore Ellingsen (), Richard Friberg and John Hassler ()

No 5749, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study optimal price setting by a monopolist in an infinite horizon model with stochastic costs, moderate inflation, and costly price adjustment. For realistic parameters, chosen to replicate observed frequencies of price changes, the model fits numerically several empirical regularities. In particular, price reductions are larger but less frequent than price increases, and prices respond considerably faster to cost increases than to cost decreases. The associated kink in the steady state short-run Phillips curve implies that the output loss associated with a small negative inflation surprise is about twice as large as the output gain associated with a small positive inflation surprise.

Keywords: asymmetric price adjustment; downward rigidity; menu costs; Phillips curve (search for similar items in EconPapers)
JEL-codes: D42 E31 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mac
Date: 2006-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5749 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:5749

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=5749

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2019-06-10
Handle: RePEc:cpr:ceprdp:5749