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Entry and markup dynamics in an estimated business cycle model

Vivien Lewis () and Arnoud Stevens ()

European Economic Review, 2015, vol. 74, issue C, 14-35

Abstract: How do changes in market structure affect the US business cycle? We estimate a monetary DSGE model with endogenous firm/product entry and a translog expenditure function by Bayesian methods. The dynamics of net business formation allow us to identify the extent to which desired price markups and inflation decrease when entry rises. We find that a 1% increase in the number of competitors lowers desired markups by 0.17%. While markup fluctuations due to sticky prices or exogenous shocks account for a large proportion of US inflation variability, endogenous changes in desired markups also play a non-negligible role.

Keywords: Bayesian estimation; Business cycles; Competition; Entry; Markups (search for similar items in EconPapers)
JEL-codes: C11 E23 E32 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Entry and markup dynamics in an estimated business cycle model (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:74:y:2015:i:c:p:14-35

DOI: 10.1016/j.euroecorev.2014.11.005

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