MACROECONOMICS OF SUBSISTENCE POINTS

Morten Ravn, Stephanie Schmitt-Grohe and Martín Uribe ()

Macroeconomic Dynamics, 2008, vol. 12, issue S1, 136-147

Abstract: This paper explores the macroeconomic consequences of preferences displaying a subsistence point. It departs from the existing related literature by assuming that subsistence points are specific to each variety of goods rather than to the composite consumption good. We show that this simple feature makes the price elasticity of demand for individual goods procyclical. As a result, markups behave countercyclically in equilibrium. This implication is in line with the available empirical evidence.

Date: 2008
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Related works:
Working Paper: The Macroeconomics of Subsistence Points (2005)
Working Paper: The Macroeconomics of Subsistence Points (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:12:y:2008:i:s1:p:136-147_07

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