On Inflation and Output with Costly Price Changes: A Simple Unifying Result
21 Pages Posted: 27 Jun 2007 Last revised: 17 May 2023
Date Written: May 1993
Abstract
We analyze the effect of inflation on the average output of monopolistic firms facing a small fixed cost of changing nominal prices. Using Taylor expansions, we derive a general closed-form solution for the slope of the long-run Phillips curve. This very simple, unifying formula allows us to evaluate and clarify the role of three key factors: the asymmetry of the profit function, the convexity of the demand function, and the discount rate. These partial equilibrium effects remain important components of any general equilibrium model with (s,S) pricing.
Suggested Citation: Suggested Citation
Bénabou, Roland and Konieczny, Jerzy, On Inflation and Output with Costly Price Changes: A Simple Unifying Result (May 1993). NBER Working Paper No. t0135, Available at SSRN: https://ssrn.com/abstract=995464
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