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Variety matters

  • Pavlov, Oscar
  • Weder, Mark

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 Galí'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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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 36 (2012)
Issue (Month): 4 ()
Pages: 629-641

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Handle: RePEc:eee:dyncon:v:36:y:2012:i:4:p:629-641
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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