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A Note on Price Asymmetry Using a Monetary Model

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In this paper we present a macroeconomic foundation of downward money price inflexibility based on classical Monetary Economics. We show that under the principle of risk aversion and the neutral money axiom, our model derives an endogenous asymmetric price response as prices adjust more rapidly when they go upward than downward. This asymmetry does not disappear; on the contrary, it is increasing in time.
Cite this paper
Schiaffino, P. and Pinasco, J. (2014) A Note on Price Asymmetry Using a Monetary Model. Theoretical Economics Letters, 4, 697-701. doi: 10.4236/tel.2014.48088. 
 

[1] Meyer, J. and Cramon-Taubadel, S. (2004) Asymmetric Price Transmission: A Survey. Journal of Agricultural Economics, 55, 581-611. http://dx.doi.org/10.1111/j.1477-9552.2004.tb00116.x
[2] Maskin, E. and Tirole, J. (1988) A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles. Econometrica: Journal of the Econometric Society, 56, 571-599. http://dx.doi.org/10.2307/1911701
[3] Sen, D. (2004) The Kinked Demand Curve Revisited. Economics Letters, 84, 99-105. http://dx.doi.org/10.1016/j.econlet.2004.01.005
[4] Schiaffino, P. (2010) A Theory of Kinked Demand Curve: Dynamic Game Theory and Price Rigidity. Anales de la Asociación Argentina de Economía Política.
http://www.aaep.org.ar/anales/works/works2010/schiaffino.pdf
[5] Olivera, J.H. (1984) Note sur l’inflexibilité des prix á la baisse. Revue d’économie politique, 94, 808-810.
[6] Brandt, M.W. and Wang, K.Q. (2003) Time-Varying Risk Aversion and Unexpected Inflation. Journal of Monetary Economics, 50, 1457-1498. http://dx.doi.org/10.1016/j.econlet.2004.01.005                           eww141024lx
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