Search in the product market and the real business cycle

Thomas Mathä and Olivier Pierrard

No 1036, Working Paper Series from European Central Bank

Abstract: We develop a search-matching model, where firms search for customers (e.g. in form of advertising). Firms use long-term contracts and bargain over prices, resulting in a price mark up above marginal cost, which is pro- cyclical and depends on firms' relative bargaining power. Product market frictions decrease the steady state equilibrium, improve the cyclical properties of the model and provide a more realistic picture of firms' business environment. This suggests that product market frictions may well be crucial in explaining business cycle fluctuations. Finally, we also show that welfare costs of price rigidities are negligible relative to welfare costs of frictions. JEL Classification: E10, E31, E32

Keywords: business cycle; frictions; price bargain; product market (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Search in the product market and the real business cycle (2011)
Working Paper: Search in the product market and the real business cycle (2011)
Working Paper: Search in the Product Market and the Real Business Cycle (2009)
Working Paper: Search in the product market and the real business cycle (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20091036

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