Output Effects of Inflation with Fixed Price- and Quantity-Adjustment Costs

Neoclassical theory presumes that the demand for labor is a function of its real wage. Many local development agencies have taken this proposition as an article of faith, designing policies that effectively lower the real cost of labor. Empirical evidence for the textiles and electronics industries in a set of states in the USA provides only limited support for this theory and its implied policy menu. Alternative models of the demand for labor are explored, including neo-Keynesian fixed-price quantity-adjustment models. Analysis is based on a set of time-series adjustment models which emphasize the dynamics of labor demand.

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On adjustment costs and price and quantity adjustment

Atlantic Economic Journal ◽

10.1007/bf02298509 ◽

1996 ◽

Vol 24 (3) ◽

pp. 260-260

Author(s):

Christoph R. Weiss

Keyword(s):

Adjustment Costs ◽

Quantity Adjustment

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Quantity adjustment costs and price stickiness

Economics Letters ◽

10.1016/0165-1765(91)90175-k ◽

1991 ◽

Vol 36 (2) ◽

pp. 121-125 ◽

Cited By ~ 2

Author(s):

Victor Ginsburgh ◽

Philippe Michel ◽

Philippe Moës

Keyword(s):

Adjustment Costs ◽

Price Stickiness ◽

Quantity Adjustment

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Adjustment costs and price and quantity adjustment

Economics Letters ◽

10.1016/0165-1765(94)00576-n ◽

1995 ◽

Vol 47 (3-4) ◽

pp. 343-349 ◽

Cited By ~ 6

Author(s):

Torben M. Andersen

Keyword(s):

Adjustment Costs ◽

Quantity Adjustment

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The Micro and Macro of Managerial Beliefs

10.31235/osf.io/fctsb ◽

2020 ◽

Cited By ~ 1

Author(s):

Jose Maria Barrero

Keyword(s):

Rational Expectations ◽

Asset Price ◽

Heterogeneous Firms ◽

Adjustment Costs ◽

Consumer Welfare ◽

Sales Growth ◽

Firm Level ◽

Managerial Decisions ◽

Managerial Beliefs ◽

Growth Volatility

This paper studies how biases in managerial beliefs affect managerial decisions, firm performance, and the macroeconomy. Using a new survey of US managers I establish three facts. (1) Managers are not over-optimistic: sales growth forecasts on average do not exceed realizations. (2) Managers are overprecise (overconfident): they underestimate future sales growth volatility. (3) Managers overextrapolate: their forecasts are too optimistic after positive shocks and too pessimistic after negative shocks. To quantify the implications of these facts, I estimate a dynamic general equilibrium model in which managers of heterogeneous firms use a subjective beliefs process to make forward-looking hiring decisions. Overprecision and overextrapolation lead managers to overreact to firm-level shocks and overspend on adjustment costs, destroying 2.1 percent of the typical firm’s value. Pervasive overreaction leads to excess volatility and reallocation, lowering consumer welfare by 0.5 to 2.3 percent relative to the rational expectations equilibrium. These findings suggest overreaction may amplify asset-price and business cycle fluctuations.

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