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Search in the Product Market and the Real Business Cycle

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Author Info

  • Thomas Y. MATHA

    (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))

Abstract

Empirical evidence suggests that most firms operate in imperfectly competitivemarkets. We develop a search-matching model between wholesalers and retailers. Firms face search costs and form long-term relationships. Price bargain results in both wholesaler and retailer markups, depending on firms’ relative bargaining power. We simulate the model 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 firms’ business environment and improve the cyclical properties of an otherwise standard real business cycle model.

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Bibliographic 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
Date of revision:
Handle: RePEc:ctl:louvir:2009019

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

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References

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Citations

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Cited by:
  1. Maurin, Laurent & Roma, Moreno & Vetlov, Igor, 2011. "Profit dynamics across the largest euro area countries and sectors," Working Paper Series 1410, European Central Bank.
  2. David M. Arseneau & Sanjay K. Chugh, 2008. "Optimal fiscal and monetary policy in customer markets," International Finance Discussion Papers 919, Board of Governors of the Federal Reserve System (U.S.).
  3. Mirko Abbritti, 2012. "Product Market Frictions, Bargaining and Pass-Through," Faculty Working Papers 19/12, School of Economics and Business Administration, University of Navarra.
  4. Dennis Wesselbaum, 2010. "Price Bargaining, the Persistence Puzzle, and Monetary Policy," Kiel Working Papers 1629, Kiel Institute for the World Economy.
  5. Emmanuel Saez & Pascal Michaillat, 2013. "A Theory of Aggregate Supply and Aggregate Demand as Functions of Market Tightness with Prices as Parameters," 2013 Meeting Papers 1216, Society for Economic Dynamics.

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