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On the Output-Inflation Relationship when Price and Quantity Adjustments are Costly

Author

Listed:
  • Leif Danziger
  • Claus Thustrup Hansen

Abstract

A vast literature analyzes the real effects of price-adjustment costs assuming that quantity adjustments are costless. In this paper, we analyze whether the presence of quantity-adjustments costs, which presumably are significant, change the traditional results on the impact of inflation. In particular, recent findings suggest that quantity-adjustment costs may remove the linkage between output and inflation. We show that this is not the case when inflation is anticipated. On the contrary, quantity-adjustment costs may significantly amplify the consequences of price-adjustment costs.

Suggested Citation

  • Leif Danziger & Claus Thustrup Hansen, 2000. "On the Output-Inflation Relationship when Price and Quantity Adjustments are Costly," CESifo Working Paper Series 293, CESifo.
    • Handle: RePEc:ces:ceswps:_293
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    References listed on IDEAS

    as
    1. Andersen, Torben M., 1995. "Adjustment costs and price and quantity adjustment," Economics Letters, Elsevier, vol. 47(3-4), pages 343-349, March.
    2. Levy, Daniel & Bergen, Mark & Dutta, Shantanu & Venable, Robert, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 112(3), pages 791-824.
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    4. Benabou, Roland & Konieczny, Jerzy D, 1994. "On Inflation and Output with Costly Price Changes: A Simple Unifying Result," American Economic Review, American Economic Association, vol. 84(1), pages 290-297, March.
    5. Dutta, Shantanu, et al, 1999. "Menu Costs, Posted Prices, and Multiproduct Retailers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 683-703, November.
    6. repec:bla:econom:v:53:y:1986:i:210:p:219-30 is not listed on IDEAS
    7. Andersen, Torben M., 1994. "Price Rigidity: Causes and Macroeconomic Implications," OUP Catalogue, Oxford University Press, number 9780198287605.
    8. Eytan Sheshinski & Yoram Weiss, 1977. "Inflation and Costs of Price Adjustment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(2), pages 287-303.
    9. Leif Danziger, 2001. "Output and Welfare Effects of Inflation with Costly Price and Quantity Adjustments," American Economic Review, American Economic Association, vol. 91(5), pages 1608-1620, December.
    10. Timur Kuran, 1986. "Price Adjustment Costs, Anticipated Inflation, and Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 407-418.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Output-inflation relationship; menu costs; quantity-adjustment costs;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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