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Article
Price Dynamics and Asymmetric Business Cycles under Mixed State and Time Dependent Pricing Rules
The B.E. Journal of Macroeconomics (2010)
  • Tinni Sen, Virginia Military Institute
  • John R Conlon, University of Mississippi
Abstract

This paper considers an optimal pricing model in continuous time that combines state and time dependent elements usually examined separately in the literature. In this model we find that recessions and booms are of roughly equal amplitude, contrary to results in Ball and Mankiw (1994) and Conlon and Liu (1997). On the other hand, while the amplitudes of booms and recessions are similar, their lengths differ. Applying the intuition developed in Ball and Mankiw to our model indicates that firms raise prices less frequently during recessions but more frequently during booms, so price-setters respond to booms more quickly.

Keywords
  • state dependent pricing,
  • time dependent pricing,
  • asymmetric business cycles
Publication Date
October 8, 2010
Citation Information
Tinni Sen and John R Conlon. "Price Dynamics and Asymmetric Business Cycles under Mixed State and Time Dependent Pricing Rules" The B.E. Journal of Macroeconomics Vol. 10 Iss. 1 (2010)
Available at: http://works.bepress.com/tinni_sen/2/