Industrial Structure, Menu Costs and the Non-Neutrality of Money
AbstractNew Keynesian literature assumes symmetric industrial structure when analysing explanations of monetary non-neutrality. We analyse the impact of modifying this assumption by allowing for a mixed industrial structure; some industries are characterized by monopolistic competition, and others by perfect competition. The mixed industrial structure implies that there is a misallocation of the input (labour) between sectors. Following a 5% monetary expansion, the menu costs required for price rigidity in the monopolistic sector can be 50 times smaller than in the symmetric case, while the ratio of welfare gain to private loss can be as large as 200 times the corresponding symmetric case. This implies that in real world economies, menu costs may be even more significant than previously thought.
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Bibliographic InfoPaper provided by Department of Economics, University of York in its series Discussion Papers with number 97/4.
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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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- Dixon, Huw David & Hansen, Claus Thustrup, 1997. "Industrial Structure, Menu Costs and the Non-Neutrality of Money," CEPR Discussion Papers 1567, C.E.P.R. Discussion Papers.
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
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- Huw Dixon & Alberto Pompermaier, 1999.
"A Comparison of Menu Costs in Open and Closed Economies with a Mixed Industrial Structure,"
Open Economies Review,
Springer, vol. 10(4), pages 365-384, October.
- Huw Dixon & Alberto Pompermaier, . "A comparison of menu-costs in open and closed economies with a mixed industrial structure," Discussion Papers 98/2, Department of Economics, University of York.
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