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A Simple Business-Cycle Model with Schumpeterian Features

  • Luis F. Costa

    (ISEG/Technical University of Lisbon and UECE)

  • Huw D. Dixon

    (University of York)

We develop a dynamic general equilibrium model of imperfect competition where a sunk cost of creating a new product regulates the type of entry that dominates in the economy: new products or more competition in existing industries. Considering the process of product innovation is irreversible, introduces hysteresis in the business cycle. Expansionary shocks may lead the economy to a new ‘prosperity plateau,’ but contractionary shocks only affect the market power of mature industries

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File URL: http://repec.org/mmf2006/up.11754.1145633110.pdf
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Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2006 with number 105.

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Date of creation: 02 Feb 2007
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Handle: RePEc:mmf:mmfc06:105
Contact details of provider: Web page: http://www.essex.ac.uk/afm/mmf/index.html

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  1. Luís F. Costa, 2004. "Endogenous Markups and Fiscal Policy," Manchester School, University of Manchester, vol. 72(s1), pages 55-71, 09.
  2. Joaquim Oliveira Martins & Stefano Scarpetta, 2002. "Estimation of the Cyclical Behaviour of Mark-ups: A Technical Note," OECD Economic Studies, OECD Publishing, vol. 2002(1), pages 173-188.
  3. Gali, J., 1991. "Monopolistic Competition, Business Cycles and the Composition of Aggregate Demand," Papers 92-03, Columbia - Graduate School of Business.
  4. J. B. Taylor & M. Woodford (ed.), 1999. "Handbook of Macroeconomics," Handbook of Macroeconomics, Elsevier, edition 1, volume 1, number 1.
  5. repec:adr:anecst:y:1995:i:37-38:p:19 is not listed on IDEAS
  6. Rotemberg, Julio J. & Woodford, Michael, 1999. "The cyclical behavior of prices and costs," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 16, pages 1051-1135 Elsevier.
  7. Dixon, Huw & Lawler, Phillip, 1996. " Imperfect Competition and the Fiscal Multiplier," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 219-31, June.
  8. 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.
  9. Costa, Luis F, 2001. "Can Fiscal Policy Improve Welfare in a Small Dependent Economy with Feedback Effects," Manchester School, University of Manchester, vol. 69(4), pages 418-39, September.
  10. Heijdra, Ben J & van der Ploeg, Frederick, 1996. "Keynesian Multipliers and the Cost of Public Funds under Monopolistic Competition," Economic Journal, Royal Economic Society, vol. 106(438), pages 1284-96, September.
  11. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  12. repec:adr:anecst:y:1995:i:37-38:p:17 is not listed on IDEAS
  13. Dos Santos Ferreira, Rodolphe & Lloyd-Braga, Teresa, 2005. "Non-linear endogenous fluctuations with free entry and variable markups," Journal of Economic Dynamics and Control, Elsevier, vol. 29(5), pages 847-871, May.
  14. Devereux, Michael B & Head, Allen C & Lapham, Beverly J, 1996. "Monopolistic Competition, Increasing Returns, and the Effects of Government Spending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 233-54, May.
  15. repec:adr:anecst:y:1995:i:37-38 is not listed on IDEAS
  16. Joaquim Oliveira Martins & Stefano Scarpetta, 1999. "The Levels and Cyclical Behaviour of Mark-ups Across Countries and Market Structures," OECD Economics Department Working Papers 213, OECD Publishing.
  17. Prantl, Susanne & Howitt, Peter & Griffith, Rachel & Blundell, Richard & Aghion, Philippe, 2004. "Entry and Productivity Growth: Evidence From Microlevel Panel Data," Scholarly Articles 4481510, Harvard University Department of Economics.
  18. Bipasa Datta & Huw Dixon, 2002. "Technological Change, Entry, and Stock-Market Dynamics: An Analysis of Transition in a Monopolistic Industry," American Economic Review, American Economic Association, vol. 92(2), pages 231-235, May.
  19. Richard Startz, 1989. "Monopolistic Competition as a Foundation for Keynesian Macroeconomic Models," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 737-752.
  20. Heijdra, Ben J, 1998. "Fiscal Policy Multipliers: The Role of Monopolistic Competition, Scale Economies, and Intertemporal Substitution in Labour Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 659-96, August.
  21. Mark Bils & Peter J. Klenow, 2001. "The Acceleration of Variety Growth," American Economic Review, American Economic Association, vol. 91(2), pages 274-280, May.
  22. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
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