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Business Cycles with Endogenous Mark-ups

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Author Info
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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Abstract

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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Publisher Info
Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2006 with number 108.

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Date of creation: 02 Feb 2007
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Handle: RePEc:mmf:mmfc06:108

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Related research
Keywords: Endogenous mark-ups; Multiple equilibria; Local dynamics;

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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References listed on IDEAS
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  1. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December. [Downloadable!] (restricted)
    Other versions:
  2. Satyajit Chatterjee & Russell W. Cooper & B. Ravikumar, 1993. "Strategic complementarity in business formation: aggregate fluctuations and sunspot equilibria," Working Papers 93-9, Federal Reserve Bank of Philadelphia.
    Other versions:
  3. Julio J. Rotemberg & Michael Woodford, 1999. "The Cyclical Behavior of Prices and Costs," NBER Working Papers 6909, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe & Gerard-Varet, Louis-Andre, 1997. "General Equilibrium Concepts under Imperfect Competition: A Cournotian Approach," Journal of Economic Theory, Elsevier, vol. 73(1), pages 199-230, March. [Downloadable!] (restricted)
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  5. Julio J. Rotemberg & Michael Woodford, 1991. "Markups and the Business Cycle," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 63-140 National Bureau of Economic Research, Inc. [Downloadable!]
  6. repec:cup:cbooks:9780521479479 is not listed on IDEAS
  7. Julio J. Rotemberg & Michael Woodford, 1995. "Modèles d'équilibre général dynamiques en concurrence imparfaite," Annales d'Economie et de Statistique, ADRES, issue 37-38, pages 18, Janvier-J. [Downloadable!]
  8. dÊASPREMONT, Claude, & DOSÊSANTOSÊFERREIRAÊ, Rodolphe & GERARD-VARETÊ, Louis-AndrŽ, 1994. "Market Power, Coordination Failures and Endogenous Fluctuations," CORE Discussion Papers 1994068, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Kaas, Leo & Madden, Paul, 2005. "Imperfectly competitive cycles with Keynesian and Walrasian features," European Economic Review, Elsevier, vol. 49(4), pages 861-886, May. [Downloadable!] (restricted)
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