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Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity

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Rotemberg, Julio J
Woodford, Michael

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Abstract

The authors construct a dynamic general equilibrium model in which the typical industry colludes by threatening to punish deviations from an implicitly agreed-on pricing path. They use methods similar to those of F. Kydland and E. Prescott (1982) to calibrate linearized versions of both their model and an analogous perfectly concerning model. The authors then compute the two models' predictions concerning the economy's responses to a change in military spending. The responses predicted by the oligopolistic model are closer to the empirical responses estimated with postwar U.S. data than the corresponding predictions of the competitive model. Copyright 1992 by University of Chicago Press.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 100 (1992)
Issue (Month): 6 (December)
Pages: 1153-1207
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Handle: RePEc:ucp:jpolec:v:100:y:1992:i:6:p:1153-1207

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Baxter, M. & King, R.G., 1988. "Multipliers In Equilibrium Business Cycle Models," RCER Working Papers 166, University of Rochester - Center for Economic Research (RCER).
  2. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December. [Downloadable!] (restricted)
  3. Mark A. Wynne, 1990. "The aggregate effects of temporary government purchases," Research Paper 9007, Federal Reserve Bank of Dallas. [Downloadable!]
  4. Lucas, Robert E, Jr, 1970. "Capacity, Overtime, and Empirical Production Functions," American Economic Review, American Economic Association, vol. 60(2), pages 23-27, May. [Downloadable!] (restricted)
  5. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May. [Downloadable!] (restricted)
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  6. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425. [Downloadable!] (restricted)
  7. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier. [Downloadable!] (restricted)
  8. Timothy J. Kehoe & David K. Levine & Paul Romer, 1992. "On Characterizing Equilibria of Models with Externalities and Taxes as Solutions to Optimization Problems," Levine's Working Paper Archive 124, David K. Levine. [Downloadable!]
  9. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June. [Downloadable!] (restricted)
  10. Barro, Robert J, 1981. "Output Effects of Government Purchases," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1086-1121, December. [Downloadable!] (restricted)
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  11. Greenwald, Bruce C & Stiglitz, Joseph E, 1993. "Financial Market Imperfections and Business Cycles," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 77-114, February. [Downloadable!] (restricted)
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  12. King, Robert G & Plosser, Charles I & Rebelo, Sergio T, 2002. "Production, Growth and Business Cycles: Technical Appendix," Computational Economics, Springer, vol. 20(1-2), pages 87-116, October. [Downloadable!]
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  13. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  14. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July. [Downloadable!] (restricted)
  15. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Discussion Paper / Institute for Empirical Macroeconomics 24, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  16. Julio Rotemberg, 1987. "The New Keynesian Microfoundations," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 69-116 National Bureau of Economic Research, Inc. [Downloadable!]
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