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Variety Matters

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  • Oscar Pavlov
  • Mark Weder

Abstract

Countercyclical markups are a key transmission mechanism in many endogenous business cycle models. Yet, recent findings suggest that aggregate markups in the US are procyclical. The current model addresses this issue. It extends Gall's (1994) composition of aggregate demand model by endogenous entry and exit of firms and by product variety effects. Endogenous business cycles emerge with procyclical markups that are within empirically plausible ranges.

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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/wp1106.pdf
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Bibliographic Info

Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 201106.

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Date of creation: 15 Mar 2011
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Handle: RePEc:san:cdmawp:1106

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Keywords: Sunspot equilibria; Indeterminacy; Markups; Variety effects; Business cycles.;

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References

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Cited by:
  1. Oscar Pavlov & Mark Weder, 2013. "Countercyclical Markups and News-Driven Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 371-382, April.
  2. Tom Holden, 2012. "Medium-frequency cycles and the remarkable near trend-stationarity of output," School of Economics Discussion Papers 1412, School of Economics, University of Surrey.

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