This paper provides new empirical evidence for quarterly U.S. aggregate advertisingexpenditures, showing that advertising has a well defined pattern over the BusinessCycle. To understand this pattern we develop a general equilibrium model wheretargeted advertising increases the marginal utility of the advertised good. Advertisingintensity is endogenously determined by profit maximizing firms. We embed thisassumption into an otherwise standard model of the business cycle withmonopolistic competition. We find that advertising affects the aggregate dynamics ina relevant way, and it exacerbates the welfare costs of fluctuations for the consumer.Finally, we provide estimates of our setup using Bayesian techniques.
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number
2009-09.
Find related papers by JEL classification: D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
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