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Published online by Cambridge University Press:  23 January 2020

Nam T. Vu*
Miami University of Ohio
Address correspondence to: Nam T. Vu, Department of Economics, Miami University of Ohio, 800 E. High St., Oxford, OH 45056, USA. e-mail:


This paper studies the implications of price flexibility on output volatility under menu costs and finds price flexibility to be output-destabilizing under supply shocks, but not necessarily so under demand shocks. We illustrate that such a result hinges on the extent to which firms can adjust along both the intensive and the extensive margins, the latter of which is often absent in the literature.

© Cambridge University Press 2020

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I am grateful for the comments from the editor, an associate editor, and two anonymous referees. All errors are mine.


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