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Variety Matters

Author

Listed:
  • Oscar Pavlov

    (School of Economics, University of Adelaide)

  • Mark Weder

    () (School of Economics, University of Adelaide)

Abstract

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 adresses this issue. It extends Gali'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.

Suggested Citation

  • Oscar Pavlov & Mark Weder, 2011. "Variety Matters," School of Economics Working Papers 2011-23, University of Adelaide, School of Economics.
  • Handle: RePEc:adl:wpaper:2011-23
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    File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2011-23.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. repec:bpj:sndecm:v:21:y:2017:i:2:p:16:n:4 is not listed on IDEAS
    2. Pavlov, Oscar, 2016. "Can firm entry explain news-driven fluctuations?," Economic Modelling, Elsevier, vol. 52(PB), pages 427-434.
    3. Oscar Pavlov & Mark Weder, 2017. "Product Scope and Endogenous Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 175-191, March.
    4. Oscar Pavlov & Mark Weder, 2013. "Countercyclical Markups and News-Driven Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 371-382, April.
    5. Chang, Juin-Jen & Lai, Ching-Chong & Liao, Chih-Hsing, 2017. "Welfare Cost of Inflation: The Role of Price Markups and Increasing Returns to Production Specialization," MPRA Paper 77753, University Library of Munich, Germany.
    6. Tom Holden, 2012. "Medium-frequency cycles and the remarkable near trend-stationarity of output," School of Economics Discussion Papers 1412, School of Economics, University of Surrey.
    7. Jiang, Dou, 2017. "Indeterminacy, capital maintenance expenditures and the business cycle," Economic Modelling, Elsevier, vol. 61(C), pages 432-438.
    8. Oscar Pavlov & Mark Weder, 2017. "Product Scope and Endogenous Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 175-191, March.

    More about this item

    Keywords

    sunspot equilibria; indeterminacy; markups; variety effects; business cycles;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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