Entry and markup dynamics in an estimated business cycle model
AbstractHow do changes in market structure affect the US business cycle? We estimate a monetary DSGE model with endogenous firm/product entry and a translog expenditure function by Bayesian methods. The dynamics of net business formation allow us to identify the extent to which desired price markups and inflation decrease when entry rises. We find that a 1 percent increase in the number of competitors lowers desired markups by 0.17 percent. While markup fluctuations due to sticky prices or exogenous shocks account for a large proportion of US inflation variability, endogenous changes in desired markups also play a non-negligible role.
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Bibliographic InfoPaper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces13.20.
Date of creation: Oct 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-02 (All new papers)
- NEP-BEC-2013-11-02 (Business Economics)
- NEP-DGE-2013-11-02 (Dynamic General Equilibrium)
- NEP-ENT-2013-11-02 (Entrepreneurship)
- NEP-MAC-2013-11-02 (Macroeconomics)
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- Offick, Sven & Winkler, Roland, 2013.
"Endogenous Firm Entry in an Estimated Model of the U.S. Business Cycle,"
Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order
79845, Verein für Socialpolitik / German Economic Association.
- Offick, Sven & Winkler, Roland C., 2014. "Endogenous firm entry in an estimated model of the US business cycle," Economics Working Papers 2014-01, Christian-Albrechts-University of Kiel, Department of Economics.
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