Why Don't Prices Fall in a Recession? Financial Constraints, Investment, and Customer Relations

Charlotte Bucht, Nils Gottfries () and Magnus Lundin
Additional contact information
Charlotte Bucht: Ministry of Finance, Postal: 103 33 Stockholm, Sweden
Magnus Lundin: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

No 2002:3, Working Paper Series from Uppsala University, Department of Economics

Abstract: We construct a model of a financially constrained firm making pricing and investment decisions. The firm operates in a market where customers respond slowly to price changes and there are implementation lags in investment (time to build). Our model implies that the markup over marginal cost is counter-cyclical, the product price responds slowly to demand shocks, and quickly to cost shocks, and the price is strongly related to investment. Estimating the decision rules on aggregate data for Swedish industry, we find that the qualitative results are in line with our model.

Keywords: customer market; price rigidity; price equation; investment equation (search for similar items in EconPapers)
JEL-codes: E31 E32 E44 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2002-02-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.nek.uu.se/pdf/wp2002_3.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.nek.uu.se/pdf/wp2002_3.pdf [301 Moved Permanently]--> https://www.nek.uu.se/pdf/wp2002_3.pdf [301 Moved Permanently]--> https://www.uu.se/institution/nationalekonomiska/pdf/wp2002_3.pdf)

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:hhs:uunewp:2002_003

Access Statistics for this paper

More papers in Working Paper Series from Uppsala University, Department of Economics Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Ulrika Öjdeby ().