Comment on "Productive Public Expenditure and Imperfect Competition with Endogenous Price Markup"

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Comment on "Productive Public Expenditure and Imperfect Competition with Endogenous Price Markup"

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Costa, Luís
Palma, Nuno

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Abstract

In this note we show that the claim from Chen et al (2005) that their model generates an endogenous markup is incorrect. This is not only a nomenclature issue: using the fixed markup which we show to be the only one consistent with the structure of the model implies the main conclusions in that paper do not hold. In particular, government expenditure in infrastructure cannot affect the business cycle in this model by deliberately changing the market structure of the economy.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5143.

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Date of creation: 16 Oct 2006
Date of revision: 08 Jun 2007
Handle: RePEc:pra:mprapa:5143

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Paper
- Luís F. Costa & Nuno Palma, 2006. "Productive Public Expenditure and Imperfect Competition with Endogenous Price Markup: Comment," Working Papers 2006/24, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]

Find related papers by JEL classification:
H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Luis Costa, 2004. "Endogenous markups and fiscal policy," Money Macro and Finance (MMF) Research Group Conference 2003 18, Money Macro and Finance Research Group. [Downloadable!]
Other versions:
- Luís F. Costa, 2001. "Endogenous Markups and Fiscal Policy," Working Papers 2001/06, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
- Luís F. Costa, 2004. "Endogenous Markups and Fiscal Policy," Manchester School, University of Manchester, vol. 72(s1), pages 55-71, 09. [Downloadable!] (restricted)
Dixon, Huw, 1987. "A Simple Model of Imperfect Competition with Walrasian Features," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 134-60, March. [Downloadable!] (restricted)
Michael B. Devereux & Allen C. Head & Beverly J. Lapham, 1993. "Monopolistic Competition, Increasing Returns, and the Effects of Government Spending," Working Papers 894, Queen's University, Department of Economics.
Other versions:
- Devereux, Michael B & Head, Allen C & Lapham, Beverly J, 1996. "Monopolistic Competition, Increasing Returns, and the Effects of Government Spending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 233-54, May. [Downloadable!] (restricted)
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:
- 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. [Downloadable!] (restricted)
Startz, Richard, 1989. "Monopolistic Competition as a Foundation for Keynesian Macroeconomic Models," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 737-52, November. [Downloadable!] (restricted)
Robert J. Barro & Silvana Tenreyro, 2006. "Closed and Open Economy Models of Business Cycles with Marked Up and Sticky Prices," Economic Journal, Royal Economic Society, vol. 116(511), pages 434-456, 04. [Downloadable!] (restricted)
Other versions:
- Robert J. Barro & Silvana Tenreyro, 2000. "Closed and Open Economy Models of Business Cycles with Marked up and Sticky Prices," NBER Working Papers 8043, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Robert Barro & Silvana Tenreyro, 2001. "Closed and open economy models of business cycles with marked-up and sticky prices," Proceedings, Federal Reserve Bank of San Francisco, issue Jun. [Downloadable!]
Heijdra, Ben J & van der Ploeg, Frederick, 1996. "Keynesian Multipliers and the Cost of Public Funds under Monopolistic Competition," Economic Journal, Royal Economic Society, vol. 106(438), pages 1284-96, September. [Downloadable!] (restricted)
Mankiw, N. Gregory, 1988. "Imperfect competition and the Keynesian cross," Economics Letters, Elsevier, vol. 26(1), pages 7-13. [Downloadable!] (restricted)
Other versions:
- N. Gregory Mankiw, 1989. "Imperfect Competition and the Keynesian Cross," NBER Working Papers 2386, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
Other versions:
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics. [Downloadable!]
Jhy-hwa Chen & Jhy-yuan Shieh & Ching-chong Lai & Juin-jen Chang, 2005. "Productive public expenditure and imperfect competition with endogenous price markup," Oxford Economic Papers, Oxford University Press, vol. 57(3), pages 522-544, July. [Downloadable!] (restricted)

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