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

14 Pages Posted: 21 Mar 2001

See all articles by Claus Thustrup Hansen

Claus Thustrup Hansen

University of Copenhagen - Economic Policy Research Unit (EPRU); CESifo (Center for Economic Studies and Ifo Institute)

Leif Danziger

Ben-Gurion University of the Negev - Department of Economics; IZA Institute of Labor Economics

Date Written: May 2000

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.

Keywords: Output-inflation relationship, menu costs, quantity-adjustment costs

JEL Classification: E31

Suggested Citation

Hansen, Claus Thustrup and Danziger, Leif, On the Output-Inflation Relationship When Price and Quantity Adjustments are Costly (May 2000). Available at SSRN: https://ssrn.com/abstract=263797

Claus Thustrup Hansen (Contact Author)

University of Copenhagen - Economic Policy Research Unit (EPRU) ( email )

University of Copenhagen, Building 26
Ă˜ster Farimagsgade 5
Copenhagen K., DK-1353
Denmark
+45 35 32 30 20 (Phone)
+45 35 32 30 00 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Leif Danziger

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
8-6472295 (Phone)
8-6472941 (Fax)

HOME PAGE: http://www.econ.bgu.ac.il/facultym/danziger/main.htm

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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