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Inflation and Asymmetric Output Adjustments by Firms.



Using ordered probit analyses of a unique micro data set, the authors find evidence of output asymmetry that is systematically related to inflation and to price asymmetry. As predicted by theory, firms are more likely at higher rates of inflation to raise prices in response to positive cost and demand shocks and less likely to lower prices in response to negative and demand shocks. The expected effects of higher inflation on output asymmetry, however, come primarily from cost and demand increases and to a lesser (and statistically insignificant) extent from cost and demand decreases. Copyright 1998 by Oxford University Press.

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