Asymmetric Price Adjustment and Economic Fluctuations

Laurence Ball and N. Gregory Mankiw

No 4089, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper considers a possible explanation for asymmetric adjustment of nominal prices. We present a menu-cost model in which positive trend inflation causes firms' relative prices to decline automatically between price adjustments. In this environment, shocks that raise firms' desired prices trigger larger price responses than shocks that lower desired prices. We use this model of asymmetric adjustment to address three issues in macroeconomics: the effects of aggregate demand, the effects of sectoral shocks, and the optimal rate of inflation.

Date: 1992-06
Note: EFG ME
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Citations: View citations in EconPapers (178)

Published as The Economic Journal, The Journal of the Royal Economic Society, vol. 104,no. 423, March 1994, p. 247-261

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Journal Article: Asymmetric Price Adjustment and Economic Fluctuations (1994)
Working Paper: Asymmetric Price Adjustment and Economic Fluctuations (1992)
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