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PRICE FLEXIBILITY AND OUTPUT VOLATILITY UNDER MENU COSTS

Published online by Cambridge University Press:  23 January 2020

Nam T. Vu
Nam T. Vu*
Affiliation:
Miami University of Ohio
*
Address correspondence to: Nam T. Vu, Department of Economics, Miami University of Ohio, 800 E. High St., Oxford, OH 45056, USA. e-mail: [email protected].
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Abstract

This paper studies the implications of price flexibility on output volatility under menu costs and finds price flexibility to be output-destabilizing under supply shocks, but not necessarily so under demand shocks. We illustrate that such a result hinges on the extent to which firms can adjust along both the intensive and the extensive margins, the latter of which is often absent in the literature.

Keywords

Price FlexibilityOutput VolatilityHeterogeneous AgentsMenu Costs
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 8 , December 2021 , pp. 2180 - 2203
Copyright
© Cambridge University Press 2020

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Footnotes

I am grateful for the comments from the editor, an associate editor, and two anonymous referees. All errors are mine.

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