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Abstract

New Keynesian literature assumes symmetric industrial structure when analysing explanations of money non-neutrality. This paper analyses the impact of modifying this assumption by allowing for a mixed industrial structure; some industries are characterized by monopolistic competition, others by perfect competition. The mixed industrial structure implies misallocation of labour between the different industries which may contribute to explanations of non-neutrality of money. Following a 5% money increase, the menu costs needed for non-neutrality may be 40 times smaller and ratio of welfare gain over private loss more than 100 times larger than in the corresponding model with a symmetric structure.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 43 (1999)
Issue (Month): 8 (August)
Pages: 1475-1499

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Handle: RePEc:eee:eecrev:v:43:y:1999:i:8:p:1475-1499

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

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Find related papers by JEL classification:

• D40 - Microeconomics - - Market Structure and Pricing - - - General
• E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
• L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

References

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1. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22.
   
   • Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
   • Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Staff Report 102, Federal Reserve Bank of Minneapolis.
2. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1988. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 55-66, February.
   
   • Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," NBER Working Papers 2115, National Bureau of Economic Research, Inc.
3. Basu, Susanto & Fernald, John G., 1995. "Are apparent productive spillovers a figment of specification error?," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 165-188, August.
   
   • Susanto Basu & John G. Fernald, 1999. "Are Apparent Productive Spillovers a Figment of Specification Error?," NBER Working Papers 5073, National Bureau of Economic Research, Inc.
   • Basu, S. & Fernald, J.G., 1993. "Are Apparent Productive Spillovers a Figment of Specification Error," Papers 93-22, Michigan - Center for Research on Economic & Social Theory.
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5. Caballero, R.J. & Lyons, R.K., 1991. "External Effects in U.S. Procyclical Productivity," Papers 91-19, Columbia - Graduate School of Business.
   
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6. Mankiw, N Gregory, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 529-38, May.
7. Laurence Ball & David Romer, 1990. "Real Rigidities and the Non-Neutrality of Money," NBER Working Papers 2476, National Bureau of Economic Research, Inc.
   
   • Ball, Laurence & Romer, David, 1990. "Real Rigidities and the Non-neutrality of Money," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 183-203, April.
8. Dennis W. Carlton, 1987. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
   
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9. Ball, Laurence & Romer, David, 1989. "Are Prices Too Sticky?," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 507-24, August.
   
   • Laurence M. Ball & David Romer, 1989. "Are Prices Too Sticky?," NBER Working Papers 2171, National Bureau of Economic Research, Inc.
10. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
11. Robert E. Hall, 1986. "Market Structure and Macroeconomic Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(2), pages 285-338.
12. Robert E. Hall, 1988. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
    
    • Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October.
13. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
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Cited by:

1. Philippe Quirion & Meriem Hamdi-Cherif, 2007. "General equilibrium impact of an energy-saving policy in the public sector," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 38(2), pages 245-258, October.
   
   • Meriem Hamdi-Cherif & Philippe Quirion, 2007. "General equilibrium impact of an energy-saving policy in the public sector," Post-Print halshs-00639321, HAL.
2. Huw. D. Dixon & Claus T. Hansen & Henrik J. Kleven, . "Dual Labour Markets and Menu Costs: Explaining the Cyclicality of Productivity and Wage Differentials," Discussion Papers 99/1, Department of Economics, University of York.
   
   • Huw David Dixon & Claus Thustrup Hansen & Henrik J. Kleven, . "Dual Labour Markets and Menu Costs: Explaining the Cyclicality of Productivity and Wage Differentials," EPRU Working Paper Series 99-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
3. Thomas Lubik, 2003. "Industrial Structure and Monetary Policy in a Small Open Economy," Economics Working Paper Archive 493, The Johns Hopkins University,Department of Economics.
4. Claus Thustrup Kreiner, 2002. "Do the New Keynesian Microfoundations Rationalise Stabilisation Policy?," Economic Journal, Royal Economic Society, vol. 112(479), pages 384-401, April.

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1. Sticky (economics) in Wikipedia (English)
2. Menu cost in Wikipedia (English)

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