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Variety matters

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  • Pavlov, Oscar
  • Weder, Mark

Abstract

Countercyclical markups are a key transmission mechanism in many endogenous business cycle models. Yet, recent findings suggest that aggregate markups in the US are procyclical. The current model addresses this issue. It extends Galí's (1994) composition of aggregate demand model by endogenous entry and exit of firms and by product variety effects. Endogenous business cycles emerge with procyclical markups that are within empirically plausible ranges.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 36 (2012)
Issue (Month): 4 ()
Pages: 629-641

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Handle: RePEc:eee:dyncon:v:36:y:2012:i:4:p:629-641

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Sunspot equilibria; Indeterminacy; Markups; Variety effects; Business cycles;

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Cited by:
  1. Tom Holden, 2012. "Medium-frequency cycles and the remarkable near trend-stationarity of output," School of Economics Discussion Papers 1412, School of Economics, University of Surrey.
  2. Oscar Pavlov & Mark Weder, 2012. "Countercyclical Markups and News-Driven Business Cycles," School of Economics Working Papers 2012-02, University of Adelaide, School of Economics.

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