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Variety Matters

  • Oscar Pavlov

    (School of Economics, University of Adelaide)

  • Mark Weder

    ()

    (School of Economics, University of Adelaide)

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.

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File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2011-23.pdf
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Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2011-23.

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Length: 26 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:adl:wpaper:2011-23
Contact details of provider: Postal: Adelaide SA 5005
Phone: (618) 8303 5540
Web page: http://www.economics.adelaide.edu.au/

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