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Advertising and Business Cycle Fluctuations

  • Benedetto Molinari

    (Universidad Pablo Olavide and Universitat Pompeu Fabra)

  • Francesco Turino

    (Universitat de Alacant)

This paper provides new empirical evidence of quarterly U.S. aggregate advertising expenditures, showing that advertising has a well defined pattern over the Business Cycle. To understand this pattern we develop a general equilibrium model where targeted advertising increases the marginal utility of the advertised good. Advertising intensity is endogenously determined by profit maximizing firms. We embed this assumption into an otherwise standard model of business cycle with monopolistic competition. We find that advertising affects the aggregate dynamics in a relevant way, and it exacerbates the welfare costs of fluctuations for the consumer. Finally, we provide estimates of our setup using Bayesian techniques.

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File URL: https://www.economicdynamics.org/meetpapers/2009/paper_419.pdf
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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 419.

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Date of creation: 2009
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Handle: RePEc:red:sed009:419
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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  1. Smets, Frank & Wouters, Raf, 2007. "Shocks and frictions in US business cycles: a Bayesian DSGE approach," Working Paper Series 0722, European Central Bank.
  2. Morten Ravn & Stephanie Schmitt-Grohé & Mart�n Uribe, 2006. "Deep Habits," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 195-218.
  3. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 113-172.
  4. Christopher Otrok, 2000. "On Measuring the Welfare Cost of Business Cycles," Econometric Society World Congress 2000 Contributed Papers 1094, Econometric Society.
  5. Benedetto Molinari & Francesco Turino, 2009. "Advertising, Labor Supply and the Aggregate Economy. A long run Analysis," Working Papers 09.16, Universidad Pablo de Olavide, Department of Economics.
  6. Stuart Fraser & David Paton, 2003. "Does advertising increase labour supply? Time series evidence from the UK," Applied Economics, Taylor & Francis Journals, vol. 35(11), pages 1357-1368.
  7. Collard, Fabrice & Dellas, Harris, 2003. "The Case for Inflation Stability," CEPR Discussion Papers 4082, C.E.P.R. Discussion Papers.
  8. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
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