Fixed production capacity, menu cost and the output-Inflation relationship

Leif Danziger, Claus Thustrup Kreiner

Research output: Contribution to journalArticlepeer-review

7 Scopus citations


This paper analyses the impact of inflation when firms face frictions in both price and quantity adjustments. A vast literature examines the consequences of price-adjustment costs assuming frictionless quantity adjustments. However, temporary quantity adjustments may be expensive, for example because continual adjustments of the optimal production plant are impossible. Moreover, recent findings suggest that frictions in quantity adjustment may remove the linkage between output and inflation. In this paper we show that this is not the case when inflation is anticipated. On the contrary, a predetermined production capacity may significantly amplify the consequences of price adjustment costs.

Original languageEnglish
Pages (from-to)433-444
Number of pages12
Issue number275
StatePublished - 1 Jan 2002
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics


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