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Non-Price Competition, Real Rigidities and Inflation Dynamics

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  • Turino Francesco

    () (Universidad de Alicante and Universitá di Bologna)

Abstract

This paper studies the implications for inflation dynamics of introducing non-price competition into a New Keynesian model featuring both nominal rigidities, which are in the form of staggered prices, and real rigidities, which are in the form of strategic complementarities in price setting. Under very general assumptions, we show that the presence of non-price competition among firms dampens the overall degree of real rigidities in the economy, thereby increasing the sensitivity of inflation to movements in real marginal costs. Because of this property, our analysis provides additional insights to the existing theories on real rigidities, showing that the strong linkage between real rigidities and the sensitivity of inflation to real marginal costs that has been found in previous works is not robust across alternative assumptions about inter-firms competition.

Suggested Citation

  • Turino Francesco, 2010. "Non-Price Competition, Real Rigidities and Inflation Dynamics," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-61, July.
  • Handle: RePEc:bpj:bejmac:v:10:y:2010:i:1:n:19
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    References listed on IDEAS

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    1. Benedetto Molinari & Francesco Turino, 2009. "Advertising and Business Cycle Fluctuations," Working Papers. Serie AD 2009-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    2. Carl E. Walsh, 2005. "Labor Market Search, Sticky Prices, and Interest Rate Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 829-849, October.
    3. Sbordone, Argia M., 2002. "Prices and unit labor costs: a new test of price stickiness," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 265-292, March.
    4. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
    5. Benedetto Molinari & Francesco Turino, 2009. "Advertising, Labor Supply and the Aggregate Economy. A long run Analysis," Working Papers 09.16, Universidad Pablo de Olavide, Department of Economics.
    6. Papatla, Purushottam, 1995. "A dynamic model of the advertising-price sensitivity relationship for heterogeneous consumers," Journal of Business Research, Elsevier, vol. 33(3), pages 261-271, July.
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    Cited by:

    1. Elena Márquez & Belén Nieto Doménech & Gonzalo Rubio Irigoyen, 2010. "Consumption, liquidity and the cross-sectional variation of expected returns," Working Papers. Serie AD 2010-24, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    2. Cuberes, David & Dougan, William, 2009. "How Endogenous Is Money? Evidence from a New Microeconomic Estimate," MPRA Paper 17744, University Library of Munich, Germany.
    3. Sonia Oreffice & Climent Quintana, 2009. "Anthropometry and Socioeconomics in the Couple: Evidence from the PSID," Working Papers 2009-22, FEDEA.
    4. José J. Sempere Monerris & Rafael Moner Colonques & Amparo Urbano Salvador, 2010. "Trade liberalization in vertically related markets," Working Papers. Serie AD 2010-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    5. José M. Jiménez Gómez, 2010. "Noncooperative justifications for old bankruptcy rules," Working Papers. Serie AD 2010-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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