Monopolistic Competition as a Foundation for Keynesian Macroeconomic Models
A general equilibrium macroeconomic model based on monopolistic competition is presented. The model exhibits a traditional multiplier in the short run, but, due to free entry, the multiplier disappears in the long run. By construction all agents are fully rational. The Keynesian results are a consequence of the assumption of monopolistic competition, which creates a divergence between optimal private behavior and optimal social behavior. Copyright 1989, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Volume (Year): 104 (1989)
Issue (Month): 4 (November)
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