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On business cycles of variety and quality

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  • Masashige Hamano

    ()
    (CREA, Université de Luxembourg)

Abstract

This paper explores the role played by product variety and quality in a real business cycle model. Firms are heterogeneous in terms of their specific quality as well as pro- ductivity levels. Firms which have costly technology enter in a period of high aggregated demand and produce high quality goods. Thus, the average quality level and number of available varieties are procyclical, as in the data. The model can replicate the observed inflationary bias in the conventional Consumer Price Index due to a rise in the number of new product varieties and quality.

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Bibliographic Info

Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 13-21.

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Date of creation: 2013
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Handle: RePEc:luc:wpaper:13-21

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Keywords: Entry and exit; firm heterogeneity; the Schumpeterian destruction; product quality; business cycles;

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