Abstract: Asymmetries in price adjustment can reconcile contrasts between
rapid price movements in inflationary episodes, consistent with
classical theories of flexible pricing, and sluggish price responses
in contractions, consistent with Keynesian theories of sticky price
adjustments. Nonparametric analysis of SIC two-digit industry data
indicates that negative asymmetries are more pronounced for real
outputs than for nominal outputs, suggesting reversed positive
asymmetries in producer pricing. Pricing decision rules are
estimated to distinguish between asymmetries in conditioning shocks
and asymmetries in producer responses. Two rational motives for
asymmetric pricing are supported.
Keywords: Asymmetric trend deviations, rational error correction, producer pricing
Full paper (268 KB PDF)
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Last update: August 4, 1997
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