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A mixed industrial structure magnifies the importance of menu costs

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  • David Dixon, Huw
  • Thustrup Hansen, Claus

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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Cited by:
  1. Claus Thustrup Kreiner, 2002. "Do the New Keynesian Microfoundations Rationalise Stabilisation Policy?," Economic Journal, Royal Economic Society, vol. 112(479), pages 384-401, April.
  2. 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.
  3. 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.
  4. Meriem Hamdi-Cherif & Philippe Quirion, 2007. "General equilibrium impact of an energy-saving policy in the public sector," Post-Print halshs-00639321, HAL.

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