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Variety Matters

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  • Oscar Pavlov

    (School of Economics, University of Adelaide)

  • Mark Weder

    ()
    (School of Economics, University of Adelaide)

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 adresses this issue. It extends Gali'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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File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2011-23.pdf
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Bibliographic Info

Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2011-23.

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Length: 26 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:adl:wpaper:2011-23

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Postal: Adelaide SA 5005
Phone: (618) 8303 5540
Web page: http://www.economics.adelaide.edu.au/
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Related research

Keywords: sunspot equilibria; indeterminacy; markups; variety effects; business cycles;

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References

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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, 2011. "Countercyclical Markups and News-Driven Business Cycles," School of Economics Working Papers 2011-28, University of Adelaide, School of Economics.

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