Paulo Brito (UECE-ISEG, Technical University of Lisbon) Luis Costa (UECE-ISEG, Technical University of Lisbon) Huw Dixon (Department of Economics, University York, UK)
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Endogenous mark-ups have been a matter of interest in macroeconomics, especially from the middle 1990’s onwards. However, the complexity of this class of models, does not allow general ualitative conclusions in most cases, and there is plenty of room for investigation, especially in the reasons driving the emergence of multiple equilibria and non-saddle-point dynamics. In this article we extend a simple dynamic general equilibrium model to include the possibility of strategic interaction between producers in each industry, and entry affects the level of macroeconomic efficiency through an endogenous mark-up. We demonstrate multiple equilibria is a likely outcome even in an exogenous labour-supply framework. A pair of equilibria exists (a stable and an unstable one) and they are connected through a heteroclinic orbit. When we allow labour supply to vary, a third equilibrium may emerge if the government is present in the economy, and local indeterminacy may exist
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Find related papers by JEL classification: C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming D4 - Microeconomics - - Market Structure and Pricing D5 - Microeconomics - - General Equilibrium and Disequilibrium E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
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Rotemberg, Julio J. & Woodford, Michael, 1999.
"The cyclical behavior of prices and costs,"
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 16, pages 1051-1135
Elsevier.
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