Macroeconomics of subsistence points
AbstractThis paper explores the macroeconomic consequences of preferences displaying a subsistence point. It departs from the existing related literature by assuming that subsistence points are specific to each variety of goods rather than to the composite consumption good. We show that this simple feature makes the price elasticity of demand for individual goods procyclical. As a result, markups behave countercyclically in equilibrium. This implication is in line with the available empirical evidence.
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Bibliographic InfoPaper provided by University College London in its series Open Access publications from University College London with number http://discovery.ucl.ac.uk/18587/.
Date of creation: Apr 2008
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Publication status: Published in Macroeconomic Dynamics (2008-04) v.12, p.136-147
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