Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82943
Authors: 
Bucht, Charlotte
Gottfries, Nils
Lundin, Magnus
Year of Publication: 
2002
Series/Report no.: 
Working Paper, Department of Economics, Uppsala University 2002:3
Abstract: 
We construct a model of a financially constrained firm making pricing and investment decisions. The firm operates in a market where customers respond slowly to price changes and there are implementation lags in investment (time to build). Our model implies that the markup over marginal cost is counter-cyclical, the product price responds slowly to demand shocks, and quickly to cost shocks, and the price is strongly related to investment. Estimating the decision rules on aggregate data for Swedish industry, we find that the qualitative results are in line with our model.
Subjects: 
customer market
price rigidity
price equation
investment equation
JEL: 
E31
E32
E44
Document Type: 
Working Paper

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