Capital-Market Consequences of Asymmetric Output-Price Rigidities
67 Pages Posted: 22 Apr 2019 Last revised: 29 Dec 2022
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Capital-Market Consequences of Asymmetric Output-Price Rigidities
Capital-Market Consequences of Asymmetric Output-Price Rigidities
Date Written: February 15, 2019
Abstract
Firms adjust output prices to cost decreases with a delay relative to cost increases. I document firms' operating income becomes less persistent when their input costs decrease than when their costs increase. The stocks of firms slowly cutting output prices due to asymmetric output-price rigidities also experience high stock return volatility, and their CEOs more frequently manage expectations of financial analysts. I show these results are consistent with a New Keynesian model with trend inflation.
Keywords: New Keynesian Economics; Downward Nominal Price Rigidities; Trend Inflation; Earnings Persistence; Stock Market
JEL Classification: E31, G14, M41
Suggested Citation: Suggested Citation