A Mixed Industrial Structure Magnifies the Importance of Menu Costs
AbstractNew Keynesian literature assumes symmetric industrial structure when analysing explanations of money non-neutrality. This paper analyses the impact of modifying this assumption by allowing for a mixed industrial structure; some industries are characterized by monopolistic competition, others by perfect competition. The mixed industrial structure implies misallocation of labour between the different industries which may contribute to explanations of non-neutrality of money. Following a 5% money increase, the menu costs needed for non-neutrality may be 40 times smaller and ratio of welfare gain over private loss more than 100 times larger than in the corresponding model with a symmetric structure.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 97-11.
Length: 24 pages
Date of creation: Sep 1997
Date of revision:
Publication status: Published in: European Economic Review 43(8) 1999, 1475-1499
Contact details of provider:
Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark
Phone: (+45) 35 32 30 10
Fax: +45 35 32 30 00
Web page: http://www.econ.ku.dk
More information through EDIRC
New Keynesian economics; industrial structure;
Other versions of this item:
- David Dixon, Huw & Thustrup Hansen, Claus, 1999. "A mixed industrial structure magnifies the importance of menu costs," European Economic Review, Elsevier, vol. 43(8), pages 1475-1499, August.
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rotemberg, Julio J & Summers, Lawrence H, 1990. "Inflexible Prices and Procyclical Productivity," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 851-74, November.
- Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1988.
"Market Structure and Cyclical Fluctuations in U.S. Manufacturing,"
NBER Working Papers
2115, National Bureau of Economic Research, Inc.
- Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1988. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 55-66, February.
- Laurence Ball & David Romer, 1987.
"Sticky Prices as Coordination Failure,"
NBER Working Papers
2327, National Bureau of Economic Research, Inc.
- Caballero, R.J. & Lyons, R.K., 1991.
"External Effects in U.S. Procyclical Productivity,"
91-19, Columbia - Graduate School of Business.
- Carlton, Dennis W, 1986.
"The Rigidity of Prices,"
American Economic Review,
American Economic Association, vol. 76(4), pages 637-58, September.
- Robert E. Hall, 1986. "Market Structure and Macroeconomic Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(2), pages 285-338.
- Susanto Basu & John G. Fernald, 1994.
"Are apparent productive spillovers a figment of specification error?,"
International Finance Discussion Papers
463, Board of Governors of the Federal Reserve System (U.S.).
- Basu, Susanto & Fernald, John G., 1995. "Are apparent productive spillovers a figment of specification error?," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 165-188, August.
- Susanto Basu & John G. Fernald, 1999. "Are Apparent Productive Spillovers a Figment of Specification Error?," NBER Working Papers 5073, National Bureau of Economic Research, Inc.
- Basu, S. & Fernald, J.G., 1993. "Are Apparent Productive Spillovers a Figment of Specification Error," Papers 93-22, Michigan - Center for Research on Economic & Social Theory.
- Laurence Ball & David Romer, 1990.
"Real Rigidities and the Non-Neutrality of Money,"
NBER Working Papers
2476, National Bureau of Economic Research, Inc.
- Prescott, Edward C., 1986.
"Theory ahead of business-cycle measurement,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 25(1), pages 11-44, January.
- Ball, Laurence & Romer, David, 1989.
"Are Prices Too Sticky?,"
The Quarterly Journal of Economics,
MIT Press, vol. 104(3), pages 507-24, August.
- Robert E. Hall, 1988.
"The Relation Between Price and Marginal Cost in U.S. Industry,"
NBER Working Papers
1785, National Bureau of Economic Research, Inc.
- Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October.
- Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
- Mankiw, N Gregory, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 529-38, May.
- Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
- Claus Thustrup Kreiner, 2002. "Do the New Keynesian Microfoundations Rationalise Stabilisation Policy?," Economic Journal, Royal Economic Society, vol. 112(479), pages 384-401, April.
- Huw David Dixon & Claus Thustrup Hansen & Henrik J. Kleven, .
"Dual Labour Markets and Menu Costs: Explaining the Cyclicality of Productivity and Wage Differentials,"
EPRU Working Paper Series
99-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Huw. D. Dixon & Claus T. Hansen & Henrik J. Kleven, . "Dual Labour Markets and Menu Costs: Explaining the Cyclicality of Productivity and Wage Differentials," Discussion Papers 99/1, Department of Economics, University of York.
- Thomas Lubik, 2003. "Industrial Structure and Monetary Policy in a Small Open Economy," Economics Working Paper Archive 493, The Johns Hopkins University,Department of Economics.
- Philippe Quirion & Meriem Hamdi-Cherif, 2007.
"General equilibrium impact of an energy-saving policy in the public sector,"
Environmental & Resource Economics,
European Association of Environmental and Resource Economists, vol. 38(2), pages 245-258, October.
- Meriem Hamdi-Cherif & Philippe Quirion, 2007. "General equilibrium impact of an energy-saving policy in the public sector," Post-Print halshs-00639321, HAL.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Hoffmann).
If references are entirely missing, you can add them using this form.