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Price Inertia in a Macroeconomic Model of Monopolistic Competition

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  • van de Klundert, Th
  • Peters, P

Abstract

This paper discusses the consequences of price setting by firms under monopolistic competitio n in dynamic models. It is assumed that costs of price adjustment are speed dependent. The Keynesian regime prevails when firms choose a p oint on the demand curve. If real labor costs are relatively high, cu stomers may be rationed. After analyzing firm behavior in a partial e quilibrium setting, demand is made endogenous in a full-scope macroec onomic model. Numerical examples are worked through by applying the t echnique of multiple shooting. It is found that relatively small cost s of price adjustment give rise to substantial macroeconomic effects. Copyright 1988 by The London School of Economics and Political Science.

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  • van de Klundert, Th & Peters, P, 1988. "Price Inertia in a Macroeconomic Model of Monopolistic Competition," Economica, London School of Economics and Political Science, vol. 55(218), pages 203-217, May.
  • Handle: RePEc:bla:econom:v:55:y:1988:i:218:p:203-17
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    Cited by:

    1. van de Klundert, Theo C. M. J. & van Schaik, Anton B. T. M., 1990. "Unemployment persistence and loss of productive capacity: A Keynesian approach," Journal of Macroeconomics, Elsevier, vol. 12(3), pages 363-380.
    2. Springer, K.A., 1989. "Wage rigidity and the persistence of unemployment," Serie Research Memoranda 0041, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    3. Carlos Borondo, 1994. "La rigidez nominal de los precios de la Nueva Economía Keynesiana: una panorámica," Investigaciones Economicas, Fundación SEPI, vol. 18(2), pages 245-288, May.
    4. van de Klundert, T.C.M.J., 1987. "A macroeconomic two-country model with price-discriminating monopolists," Research Memorandum FEW 279, Tilburg University, School of Economics and Management.

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