In this paper I present a model of asymmetric pricing. Firms here follow
the (S,s) pricing rule with different lengths of tails. I use numerical
simulations with four-state shocks to detect the link between the
present asymmetry in pricing on the micro level and asymmetry in
aggregate output movements. This paper investigates whether the
asymmetry on firm level can result in asymmetry on the macro level and
what is the role of heterogeneity of agents in the process. It looks at
two kinds of asymmetries on the aggregate level: (i) asymmetric output
responses to positive and negative monetary shocks and (ii) asymmetric
responses to shocks during different phases of business cycle. The basic
conclusion is that to some extent the first type of asymmetry can be
attributed to the asymmetry of adjustment bands and that heterogeneity
softens the effect, but the second type of asymmetry is the result of
(S,s) pricing behaviour of firms, thus of heterogeneity itself.
Keywords: (S,s) pricing, Asymmetry, Four-state shocks, Heterogeneity. JEL codes: E31, E37.
UNU-MERIT Working Papers ISSN 1871-9872