Advertising and Business Cycle Fluctuations
This paper provides new empirical evidence for quarterly U.S. aggregate advertisingexpenditures, showing that advertising has a well defined pattern over the BusinessCycle. To understand this pattern we develop a general equilibrium model wheretargeted advertising increases the marginal utility of the advertised good. Advertisingintensity is endogenously determined by profit maximizing firms. We embed thisassumption into an otherwise standard model of the business cycle withmonopolistic competition. We find that advertising affects the aggregate dynamics ina relevant way, and it exacerbates the welfare costs of fluctuations for the consumer.Finally, we provide estimates of our setup using Bayesian techniques.
|Date of creation:||Mar 2009|
|Date of revision:|
|Publication status:||Published by Ivie|
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- Ashley, R & Granger, C W J & Schmalensee, R, 1980. "Advertising and Aggregate Consumption: An Analysis of Causality," Econometrica, Econometric Society, vol. 48(5), pages 1149-67, July.
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CEPR Discussion Papers
4269, C.E.P.R. Discussion Papers.
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- Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
- James W. Friedman, 1983. "Advertising and Oligopolistic Equilibrium," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 464-473, Autumn.
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