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International real business cycles with endogenous markup variability

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  • Davis, J. Scott
  • Huang, Kevin X.D.

Abstract

The aggregate impact of decisions made at the level of the individual firm has recently attracted a lot of attention in both the macro and trade literatures. We adapt the benchmark international real business cycle model to a game-theoretic environment to add a channel for the strategic interaction among domestic and foreign firms. We show how the sum of strategic pricing decisions made at the level of the individual firm can have significant effects on the volatility and cross country co-movement of GDP and its components. Specifically we show that the addition of this one channel for strategic interaction leads to a significant increase in the cross-country co-movement of production and investment, as well as a significant decrease in the volatility of investment and the trade balance over the benchmark IRBC model.

Suggested Citation

  • Davis, J. Scott & Huang, Kevin X.D., 2011. "International real business cycles with endogenous markup variability," Journal of International Economics, Elsevier, vol. 85(2), pages 302-316.
  • Handle: RePEc:eee:inecon:v:85:y:2011:i:2:p:302-316
    DOI: 10.1016/j.jinteco.2011.06.004
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    Cited by:

    1. Lilia Cavallari & Federico Etro, 2017. "Demand, Markups and the Business Cycle. Bayesian Estimation and Quantitative Analysis in Closed and Open Economies," Working Papers 2017:09, Department of Economics, University of Venice "Ca' Foscari".
    2. repec:fip:feddgm:00014 is not listed on IDEAS
    3. repec:exl:25engi:v:27:y:2016:i:5:p:546-556 is not listed on IDEAS
    4. repec:eee:joecas:v:15:y:2017:i:c:p:39-47 is not listed on IDEAS
    5. Nikolaos Antonakakis & Ioannis Chatziantoniou & George Filis, 2016. "Business Cycle Spillovers in the European Union: What is the Message Transmitted to the Core?," Manchester School, University of Manchester, vol. 84(4), pages 437-481, July.

    More about this item

    Keywords

    Endogenous markup variability; International Business cycle Co-movement; International real business cycles;

    JEL classification:

    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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