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Advertising and Business Cycle Fluctuations

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Author Info

  • Benedetto Molinari

    (Universidad Pablo de Olavide)

  • Francesco Turino

    (Universidad de Alicante)

Abstract

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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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2009-09.pdf
File Function: Fisrt version / Primera version, 2009
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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2009-09.

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Length: 48 pages
Date of creation: Mar 2009
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2009-09

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Related research

Keywords: Advertising; DSGE model; Business Cycle fluctuations; Bayesian;

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References

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  1. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 6112, C.E.P.R. Discussion Papers.
  2. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
  3. Morten O. Ravn & Stephanie Schmitt-Grohe, 2004. "Deep Habits," 2004 Meeting Papers 208, Society for Economic Dynamics.
  4. Benedetto Molinari & Francesco Turino, 2009. "Advertising, Labor Supply and the Aggregate Economy. A long run Analysis," Working Papers 09.16, Universidad Pablo de Olavide, Department of Economics.
  5. Stuart Fraser & David Paton, 2003. "Does advertising increase labour supply? Time series evidence from the UK," Applied Economics, Taylor & Francis Journals, vol. 35(11), pages 1357-1368.
  6. An, Sungbae & Schorfheide, Frank, 2005. "Bayesian Analysis of DSGE Models," CEPR Discussion Papers 5207, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Belo, Frederico & Lin, Xiaoji & Vitorino, Maria Ana, 2013. "Brand Capital and Firm Value," Working Paper Series 2013-04, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  2. David M. Arseneau & Ryan Chahrour & Sanjay K. Chugh & Alan Finkelstein Shapiro, 2013. "Optimal Fiscal and Monetary Policy in Customer Markets," Boston College Working Papers in Economics 842, Boston College Department of Economics.
  3. Benedetto Molinari & Francesco Turino, 2009. "Advertising, Labor Supply and the Aggregate Economy. A long run Analysis," Working Papers 09.16, Universidad Pablo de Olavide, Department of Economics.
  4. Climent Quintana Domeque & Sonia Oreffice, 2010. "Anthropometry and socioeconomics in the couple: evidence from the PSID," Working Papers. Serie AD 2010-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Fridriksson, Kari S. & Zoega, Gylfi, 2012. "Advertising as a predictor of investment," Economics Letters, Elsevier, vol. 116(1), pages 60-66.

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