ASYMMETRIC ADJUSTMENTS OF PRICE AND OUTPUT

Classical theories predict rapid price adjustments, which are observed in inflationary episodes; Keynesian theories of sticky prices predict sluggish price responses, which are observed in contractions. We atte mpt to reconcile these observations in a model with asymmetries in pro ducer price and output adjustments. Analysis of SIC two-digit industry data indicates production frequently exhibits negative asymmetry-shor tfalls from trend are larger than positive deviations-whereas price of ten displays positive asymmetry. Evidence supporting two rational moti ves for asymmetric pricing is presented, but causal interactions betwe en output and price asymmetries are not resolved.