Industrial Structure, Menu Costs and the Non-Neutrality of Money
AbstractNew Keynesian literature assumes symmetric industrial structure when analysing explanations of monetary non-neutrality. We analyse the impact of modifying this assumption by allowing for a mixed industrial structure; some industries are characterized by monopolistic competition, and others by perfect competition. The mixed industrial structure implies that there is a misallocation of the input (labour) between sectors. Following a 5% monetary expansion, the menu costs required for price rigidity in the monopolistic sector can be 50 times smaller than in the symmetric case, while the ratio of welfare gain to private loss can be as large as 200 times the corresponding symmetric case. This implies that in real world economies, menu costs may be even more significant than previously thought.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1567.
Date of creation: Jan 1997
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Other versions of this item:
- Huw Dixon & Claus Thustrup Hansen, . "Industrial Structure, Menu Costs and the Non-Neutrality of Money," Discussion Papers 97/4, Department of Economics, University of York.
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
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- Huw Dixon & Alberto Pompermaier, .
"A comparison of menu-costs in open and closed economies with a mixed industrial structure,"
98/2, Department of Economics, University of York.
- Huw Dixon & Alberto Pompermaier, 1999. "A Comparison of Menu Costs in Open and Closed Economies with a Mixed Industrial Structure," Open Economies Review, Springer, vol. 10(4), pages 365-384, October.
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