INFLATION AND ASYMMETRIC OUTPUT ADJUSTMENTS BY FIRMS

Using ordered probit analyses of a unique micro data set, we find evid ence of output asymmetry that is systematically related to inflation a nd to price asymmetry. As predicted by theory, firms are more likely a t higher rates of inflation to raise prices in response to positive co st and demand shocks and less likely to lower prices in response to ne gative cost and demand shocks. The expected effects of higher inflatio n on output asymmetry, however, come primarily from cost and demand in creases and to a lesser (and statistically, insignificant) extent from cost and demand decreases.