The Ramsey model with monopolistic competition and general preferences

Federico Etro ()

Economics Letters, 2016, vol. 145, issue C, 141-144

Abstract: I extend the Ramsey model of consumption and growth to general preferences over a variety of goods supplied under monopolistic competition, and derive the implications for markup variability and macroeconomic dynamics. The model delivers a modified Euler equation that affects the short run dynamics of consumption. When the relative risk aversion is decreasing, monopolistic competition generates countercyclical markups and (compared to perfect competition) magnifies the impact of shocks on consumption through new intertemporal substitution mechanisms.

Keywords: Ramsey model; Monopolistic competition; Variable markups; Morishima elasticity of substitution; Real Business Cycle (search for similar items in EconPapers)
JEL-codes: E2 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:145:y:2016:i:c:p:141-144

DOI: 10.1016/j.econlet.2016.05.017

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