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On business cycles of variety and quality

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  • Masashige Hamano

    ()
    (CREA, Universit├ę 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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Related research

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

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  18. Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1163-90, December.
  19. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
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  21. Jerry Hausman, 2003. "Sources of Bias and Solutions to Bias in the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 23-44, Winter.
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