Capital-Market Consequences of Asymmetric Output-Price Rigidities

67 Pages Posted: 22 Apr 2019 Last revised: 29 Dec 2022

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Jin Xie

Peking University HSBC Business School

Multiple version iconThere are 2 versions of this paper

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

Xie, Jin, Capital-Market Consequences of Asymmetric Output-Price Rigidities (February 15, 2019). Xie, J. (2020). Capital-market consequences of asymmetric output-price rigidities. Journal of Monetary Economics 114, 221-239., Available at SSRN: https://ssrn.com/abstract=3358165

Jin Xie (Contact Author)

Peking University HSBC Business School ( email )

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