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Endogenous business cycles and business formation with strategic investment

  • d’ASPREMONT, Claude
  • DOS SANTOS FERREIRA, Rodolphe
  • GERARD-VARET, Louis-André

We study an endogenous business cycle model with Cournotian monopolistic competition and an endogenous number of firms in each sector. Our model is a simple general equilibrium macroeconomic model introducing overlapping generations both of consumers and firms. Firms strategically decide on investment in the first period of their life, and compete ' la Cournot in the second period. Investment is taken to be a in human capital or technological know-how, to have spillover effects and to be formed from simple labour supplied by young consumers in anticipation of the profit share they get when old. It is Cournot competition that allows to analyze the variation of monopoly power along the cyle, since the number of firms is endogenized. As this number increases, firms behave more and more competitively. The properties along the cycle are generated by business formation. They will include the counter-cyclicality of markups and prices, the pro-cyclicality of the number of firms and of real wages.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2000053.

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Date of creation: 00 Nov 2000
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Handle: RePEc:cor:louvco:2000053
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  1. Satyajit Chatterjee & Russell W. Cooper & B. Ravikumar, 1993. "Strategic complementarity in business formation: aggregate fluctuations and sunspot equilibria," Working Papers 93-9, Federal Reserve Bank of Philadelphia.
  2. Dixon,Huw David & Rankin,Neil, 1995. "The New Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521479479.
  3. Cazzavillan, Guido & Lloyd-Braga, Teresa & Pintus, Patrick A., 1998. "Multiple Steady States and Endogenous Fluctuations with Increasing Returns to Scale in Production," Journal of Economic Theory, Elsevier, vol. 80(1), pages 60-107, May.
  4. Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August.
  5. d'ASPREMONT, Claude & JACQUEMIN, Alexis, . "Cooperative and noncooperative R&D in duopoly with spillovers," CORE Discussion Papers RP 823, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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