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Customer flows, countercyclical markups, and the persistent effects of monetary shocks

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  • Peter N. Ireland

Abstract

This paper develops a general equilibrium model in which households face fixed costs associated with searching for a new supplier of consumption goods. These search costs provide firms with some monopoly power over their existing customers and generate the kind of customer flow dynamics first considered by Phelps and Winter. Customer flows, in turn, cause markups of price over marginal cost to vary countercyclically, both amplify and propagate the effects of technology shocks on output, and allow the effects of monetary shocks on output to persist.

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File URL: http://www.richmondfed.org/publications/research/working_papers/1995/wp_95-4.cfm
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Bibliographic Info

Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 95-04.

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Date of creation: 1995
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Handle: RePEc:fip:fedrwp:95-04

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Related research

Keywords: Business cycles ; Prices;

References

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  1. James Tobin, 1977. "How Dead is Keynes?," Cowles Foundation Discussion Papers 458, Cowles Foundation for Research in Economics, Yale University.
  2. Gottfries, Nils, 1986. " Price Dynamics of Exporting and Import-Competing Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(2), pages 417-36.
  3. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  4. Robert J. Gordon, 1981. "Output Fluctuations and Gradual Price Adjustment," NBER Working Papers 0621, National Bureau of Economic Research, Inc.
  5. Julio J. Rotemberg & Michael Woodford, 1991. "Markups and the Business Cycle," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 63-140 National Bureau of Economic Research, Inc.
  6. Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, vol. 85(3), pages 492-511, June.
  7. Alan S. Blinder & Stanley Fischer, 1982. "Inventories, Rational Expectations, and the Business Cycle," NBER Working Papers 0381, National Bureau of Economic Research, Inc.
  8. Robert E. Hall, 1975. "The Rigidity of Wages and the Persistence of Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 301-350.
  9. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December.
  10. Ball, Laurence & Romer, David, 1990. "Real Rigidities and the Non-neutrality of Money," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 183-203, April.
  11. Howitt, Peter, 1988. "Business Cycles with Costly Search and Recruiting," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 147-65, February.
  12. Feldman, Mark & Gilles, Christian, 1985. "An expository note on individual risk without aggregate uncertainty," Journal of Economic Theory, Elsevier, vol. 35(1), pages 26-32, February.
  13. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
  14. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  15. Olivier J. Blanchard, 1982. "Price Asynchronization and Price Level Inertia," NBER Working Papers 0900, National Bureau of Economic Research, Inc.
  16. Wright, Randall, 1986. "Job Search and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 38-55, February.
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