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Variety Matters

  • Oscar Pavlov
  • Mark Weder

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 addresses this issue. It extends Gall'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.st-andrews.ac.uk/economics/CDMA/papers/wp1106.pdf
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 201106.

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Date of creation: 15 Mar 2011
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Handle: RePEc:san:cdmawp:1106
Contact details of provider: Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
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