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Search in the Product Market and the Real Business Cycle

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Author Info
Thomas Y. MATH€ (CENTRAL BANK OF LUXEMBOURG, Economics and Research Department)
Olivier PIERRARD (CENTRAL BANK OF LUXEMBOURG, Economics and Research Department and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

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Abstract

Empirical evidence suggests thatmost firms operate in imperfectly competitivemarkets. We develop a search-matching model between wholesalers and retailers. Firms face search costs and formlong-termrelationships. Price bargain results in both wholesaler and retailer markups, depending on firmsÕ relative bargaining power. We simulate themodel to explore the role of product market search frictions in business cycles. We show that the way search costs are modelled is crucial to provide a realistic picture of firmsÕ business environment and improve the cyclical properties of an otherwise standard real business cycle model.

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Publisher Info
Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2009019.

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Length: 29
Date of creation: 01 Jul 2009
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Handle: RePEc:ctl:louvir:2009019

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Related research
Keywords: Business cycle; Frictions; Product market; Price bargain;

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Find related papers by JEL classification:
E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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