Output Effects of Inflation with Fixed Price- and Quantity-Adjustment Costs

17 Pages Posted: 24 Oct 2005

See all articles by Leif Danziger

Leif Danziger

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

Date Written: September 2005

Abstract

With fixed costs of price and quantity adjustment, output effects of inflation depend on the elasticity of the firm's marginal real revenue. If the elasticity always exceeds minus unity, then output decreases with inflation, while if the elasticity is always less than minus unity, then output increases with inflation. In the special case that the elasticity always equals minus unity, then output is independent of inflation. This is the case if demand is derived from a logquadratic utility function.

JEL Classification: E31

Suggested Citation

Danziger, Leif, Output Effects of Inflation with Fixed Price- and Quantity-Adjustment Costs (September 2005). CESifo Working Paper Series No. 1538, Available at SSRN: https://ssrn.com/abstract=831464

Leif Danziger (Contact Author)

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

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

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