ABSTRACT
Using a unique micro data set, we find evidence of output asymmetry that is systematically related to inflation and to price asymmetry. Ordered probit estimates of output and price changes by firms show that output and prices respond asymmetrically to demand shocks. At high inflation there is a greater probability of a fall in output in response to negative demand shocks than a rise in output in response to positive demand shocks. Conversely, at high inflation there is a greater probability of a rise in prices in response to positive shocks than a fall in prices in response to negative shocks. As inflation falls, both output and price asymmetry in response to demand shocks become less pronounced. Strong evidence of price asymmetry in response to cost shocks, however, is not matched by a significant asymmetric output response to cost shocks.
