Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/17856
Authors: 
Danziger, Leif
Year of Publication: 
2007
Series/Report no.: 
Kiel Working Paper 1340
Abstract: 
This paper analyzes the optimal adjustment strategy of an inventory-holding firm facing price- and quantity-adjustment costs in an inflationary environment. The model nests both the original menu-cost model that allows production to be costlessly adjusted, and the later model that includes price- and quantity-adjustment costs, but rules out inventory holdings. The firm's optimal adjustment strategy may involve stockouts. At low inflation rates, output is inversely related to the inflation rate, and the length of time demand is satisfied decreases with the absolute value of the demand elasticity, the storage cost, and the real interest rate.
Subjects: 
Menu costs
Quantity-adjustment costs
Inventories
Output
Inflation
JEL: 
D24
D21
L23
Document Type: 
Working Paper

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