The Price Index Effect and Macroeconomic Inefficiency
AbstractIn the Dixit-Stiglitz model of monopolistic competition the effects of individual pricing decisions on the aggregate price index are neglected. Tliis paper studies the implications of this approximation in terms of the efficiency of macroeconomic equilibria. We show that allowing for the price-index effect, makes the degree of inefficiency positively correiated with the number of agents; it also reduces the scope for New Keynesian outcomes, such as price rigidity and multiple equilibria.
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Bibliographic InfoArticle provided by De Boeck Université in its journal Recherches économiques de Louvain.
Volume (Year): 68 (2002)
Issue (Month): 3 ()
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Web page: http://www.cairn.info/revue-recherches-economiques-de-louvain.htm
Other versions of this item:
- Corrado BENASSI & Alessandra CHIRCO & Caterina COLOMBO, 2002. "The Price Index Effect and Macroeconomic Inefficiency," Discussion Papers (REL - Recherches Economiques de Louvain) 2002036, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- D62 - Microeconomics - - Welfare Economics - - - Externalities
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