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Imperfect competition, menu costs and near rationality as a source of the nominal price rigidity in the new keynesian macroeconomics

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  • Karel Brůna
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    Abstract

    This study stress attention to the effects of imperfect competitive markets, menu costs and firm near rationality upon nominal price rigidity and non-neutrality of money in works of new keynesian economists. New keynesians consider the price rigidity as a direct expression of the firm price decisions in the context of the nominal aggregate demand shock initiated by change in the central bank money supply. But such case of nominal price stability is the result of firm price decision only when it meets combination of "right" parametres of firm demand and supply function, it means "right" slope of marginal revenue and marginal costs function and their stability (anti-cyclical movements of the mark-ups) that is based above all on high firm monopoly power and high elasticity of labor supply. Explanation of the price rigidity should therefore put together the influence of menu costs and near rationality with real price and wage rigidities.

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    Bibliographic Info

    Article provided by University of Economics, Prague in its journal Politická ekonomie.

    Volume (Year): 2003 (2003)
    Issue (Month): 6 ()
    Pages:

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    Handle: RePEc:prg:jnlpol:v:2003:y:2003:i:6:id:445

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    Keywords: inflation; unemployment; Phillips curve; real growth; menu costs; near rationality;

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