TY  - JOUR
AU  - Caballero,Ricardo J.
AU  - Engel,Eduardo M.R.A.
TI  - Price Rigidities, Asymmetries, and Output Fluctuations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4091
PY  - 1992
Y2  - June 1992
UR  - http://www.nber.org/papers/w4091
L1  - http://www.nber.org/papers/w4091.pdf
N1  - Author contact info:
Ricardo J. Caballero
MIT
Department of Economics
Room E52-373a
Cambridge, MA 02142-1347
Tel: 617/253-0489
Fax: 617/253-6915
E-Mail: caball@mit.edu

Eduardo Engel
Yale University
Department of Economics
P.O. Box 208268
New Haven, CT  06520-8268
Tel: 203/432-5595
Fax: 203/432-5779
E-Mail: eduardo.engel@yale.edu
AB  - In this paper we characterize the average response of output to aggregate demand shocks in an economy where individual firms follow state-dependent pricing rules. We find that: (i) the average response of output to aggregate demand shocks decreases with core inflation and varies non-monotonically with aggregate uncertainty, (ii) there is an asymmetry in the response of output to aggregate demand expansions and contractions, which increases with core inflation and decreases with aggregate uncertainty, and (iii) this asymmetry also rises with the degree of asymmetry of aggregate demand shocks. Using annual data from 37 moderate-low inflation countries for the period 1960-1982, we find support for the basic implications of the model.
ER  -