Variety matters

Oscar Pavlov and Mark Weder

Journal of Economic Dynamics and Control, 2012, vol. 36, issue 4, 629-641

Abstract: 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 Galí'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.

Keywords: Sunspot equilibria; Indeterminacy; Markups; Variety effects; Business cycles (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:36:y:2012:i:4:p:629-641

DOI: 10.1016/j.jedc.2011.12.003

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