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A Comparison of Menu Costs in Open and Closed Economies with a Mixed Industrial Structure

Listed author(s):
  • Huw Dixon

    ()

  • Alberto Pompermaier

In this paper we develop Dixon and Hansen (1997) to allow for two-sector small open economy in which the non-traded sector is monopolistic. The closed economy version of the model generalises Dixon/Hansen to allow for diminishing returns on the traded sector. We compare the short-run impact of menu costs on the economy and also the size of menu costs needed to sustain nominal rigidity in both the open and closed economies. We find that whilst the welfare gains from monetary expansion are of a similar magnitude, nominal rigidity can occur for much smaller menu costs than in the closed economy case. Hence we argue that menu costs and the resultant nominal rigidities are more likely to be important in an open economy. Copyright Kluwer Academic Publishers 1999

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File URL: http://hdl.handle.net/10.1023/A:1008329530140
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 10 (1999)
Issue (Month): 4 (October)
Pages: 365-384

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Handle: RePEc:kap:openec:v:10:y:1999:i:4:p:365-384
DOI: 10.1023/A:1008329530140
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Order Information: Web: http://www.springer.com/economics/international+economics/journal/11079/PS2

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  1. Basu, Susanto, 1995. "Intermediate Goods and Business Cycles: Implications for Productivity and Welfare," American Economic Review, American Economic Association, vol. 85(3), pages 512-531, June.
  2. Laurence Ball & David Romer, 1987. "Sticky Prices as Coordination Failure," NBER Working Papers 2327, National Bureau of Economic Research, Inc.
  3. Julio J. Rotemberg & Lawrence H. Summers, 1990. "Inflexible Prices and Procyclical Productivity," The Quarterly Journal of Economics, Oxford University Press, vol. 105(4), pages 851-874.
  4. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 529-538.
  5. Susanto Basu & John G. Fernald, 1994. "Are apparent productive spillovers a figment of specification error?," International Finance Discussion Papers 463, Board of Governors of the Federal Reserve System (U.S.).
  6. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 2005. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," Macroeconomics 0505012, EconWPA.
  7. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1988. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 55-66, February.
  8. Dixon, H. & Rankin, N., 1991. "Imperfect Competition and Macroeconomics: a Survey," The Warwick Economics Research Paper Series (TWERPS) 387, University of Warwick, Department of Economics.
  9. Huw Dixon & Claus Thustrup Hansen, "undated". "Industrial Structure, Menu Costs and the Non-Neutrality of Money," Discussion Papers 97/4, Department of Economics, University of York.
  10. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-666, September.
  11. Caballero, Ricardo J. & Lyons, Richard K., 1992. "External effects in U.S. procyclical productivity," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 209-225, April.
  12. George A. Akerlof & Janet L. Yellen, 1985. "A Near-Rational Model of the Business Cycle, with Wage and Price Inertia," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 823-838.
  13. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  14. Aizenman, Joshua, 1989. "Monopolistic competition, relative prices, and output adjustment in the open economy," Journal of International Money and Finance, Elsevier, vol. 8(1), pages 5-28, March.
  15. Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
  16. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
  17. Laurence Ball & David Romer, 1990. "Real Rigidities and the Non-Neutrality of Money," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 183-203.
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