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A Simple Business-Cycle Model with Shumpeterian Features

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Author Info
Costa, Luís F.
Dixon, Huw () (Cardiff Business School)

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Abstract

We develop a dynamic general equilibrium model of imperfect competition where a sunk cost of creating a new product regulates the type of entry that dominates in the economy: new products or more competition in existing industries. Considering the process of product innovation is irreversible, introduces hysteresis in the business cycle. Expansionary shocks may lead the economy to a new 'prosperity plateau,' but contractionary shocks only affect the market power of mature industries.

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File URL: http://www.cardiff.ac.uk/carbs/econ/workingpapers/papers/E2007_28.pdf
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Publisher Info
Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2007/28.

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Length: 45 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:cdf:wpaper:2007/28

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Related research
Keywords: Entry; Hysteresis; Mark-up;

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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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. Luis Costa, 2004. "Endogenous markups and fiscal policy," Money Macro and Finance (MMF) Research Group Conference 2003 18, Money Macro and Finance Research Group. [Downloadable!]
    Other versions:
  2. Bipasa Datta & Huw Dixon, 2002. "Technological Change, Entry, and Stock-Market Dynamics: An Analysis of Transition in a Monopolistic Industry," American Economic Review, American Economic Association, vol. 92(2), pages 231-235, May. [Downloadable!]
  3. 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. [Downloadable!] (restricted)
  4. Satyajit Chatterjee & Russell W. Cooper & B. Ravikumar, 1993. "Strategic complementarity in business formation: aggregate fluctuations and sunspot equilibria," Working Papers 93-9, Federal Reserve Bank of Philadelphia.
    Other versions:
  5. Gali Jordi, 1994. "Monopolistic Competition, Business Cycles, and the Composition of Aggregate Demand," Journal of Economic Theory, Elsevier, vol. 63(1), pages 73-96, June. [Downloadable!] (restricted)
    Other versions:
  6. Devereux, Michael B & Head, Allen C & Lapham, Beverly J, 1996. "Monopolistic Competition, Increasing Returns, and the Effects of Government Spending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 233-54, May. [Downloadable!] (restricted)
    Other versions:
  7. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2004. "Entry and Productivity Growth: Evidence from Microlevel Panel Data," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 265-276, 04/05. [Downloadable!] (restricted)
  8. Julio J. Rotemberg & Michael Woodford, 1999. "The Cyclical Behavior of Prices and Costs," NBER Working Papers 6909, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe & Gerard-Varet, Louis-Andre, 1997. "General Equilibrium Concepts under Imperfect Competition: A Cournotian Approach," Journal of Economic Theory, Elsevier, vol. 73(1), pages 199-230, March. [Downloadable!] (restricted)
    Other versions:
  10. Costa, Luis F, 2001. "Can Fiscal Policy Improve Welfare in a Small Dependent Economy with Feedback Effects," Manchester School, University of Manchester, vol. 69(4), pages 418-39, September. [Downloadable!] (restricted)
  11. Startz, Richard, 1989. "Monopolistic Competition as a Foundation for Keynesian Macroeconomic Models," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 737-52, November. [Downloadable!] (restricted)
  12. Julio J. Rotemberg & Michael Woodford, 1995. "Modèles d'équilibre général dynamiques en concurrence imparfaite," Annales d'Economie et de Statistique, ADRES, issue 37-38, pages 18, Janvier-J. [Downloadable!]
  13. Mark Bils & Peter J. Klenow, 2001. "The Acceleration of Variety Growth," American Economic Review, American Economic Association, vol. 91(2), pages 274-280, May. [Downloadable!] (restricted)
  14. Heijdra, Ben J & van der Ploeg, Frederick, 1996. "Keynesian Multipliers and the Cost of Public Funds under Monopolistic Competition," Economic Journal, Royal Economic Society, vol. 106(438), pages 1284-96, September. [Downloadable!] (restricted)
  15. Dixon, Huw & Lawler, Phillip, 1996. " Imperfect Competition and the Fiscal Multiplier," Scandinavian Journal of Economics, Blackwell Publishing, vol. 98(2), pages 219-31, June.
  16. Heijdra, Ben J, 1998. "Fiscal Policy Multipliers: The Role of Monopolistic Competition, Scale Economies, and Intertemporal Substitution in Labour Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 659-96, August.
  17. 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)
    Other versions:
  18. Joaquim Oliveira Martins & Stefano Scarpetta, 1999. "The Levels and Cyclical Behaviour of Mark-ups Across Countries and Market Structures," OECD Economics Department Working Papers 213, OECD, Economics Department. [Downloadable!]
Full references

Cited by:
(explanations, 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. Luís Costa, 2006. "Entry and fiscal policy effectiveness in a small open economy within a Monetary Union," Portuguese Economic Journal, Springer, vol. 5(1), pages 45-65, May. [Downloadable!] (restricted)
  2. Luís F. Costa & Huw Dixon, 2009. "Fiscal Policy under Imperfect Competition: A Survey," Working Papers 2009/25, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
  3. Brito, Paulo & Costa, Luís F. & Dixon, Huw, 2008. "Non-smooth Dynamics and Multiple Equilibria in a Cournot-Ramsey Model with Endogenous Markups," Cardiff Economics Working Papers E2008/21, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
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