Finance and Economics Discussion Series (FEDS)
July 1997
Asymmetric Adjustments of Price and Output
P.A. Tinsley and Reva Krieger
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.
Full paper (309 KB Postscript)Keywords: Asymmetric trend deviations, rational error correction, producer pricing
PDF: Full Paper
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