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Relative Price Fluctuations in a Two-Sector Model with Imperfect Competition

Alain Gabler ()

Review of Economic Dynamics, 2014, vol. 17, issue 3, 474-483

Abstract: Counter-cyclical fluctuations in the price of investment in consumption units are often attributed to investment-specific technology shocks. This paper looks at an additional source for such fluctuations: sector-specific markup variations, the idea being that pro-cyclical competition and the higher variability of investment compared to consumption pushes down the relative price of investment during expansions. I find that such endogenous movements in sector-specific markups can account for up to 30% of the observed fluctuations in the price of investment. (Copyright: Elsevier)

Keywords: Relative price of investment; Firm entry and exit; Endogenous markups; Multi-sector modeling (search for similar items in EconPapers)
JEL-codes: D43 E32 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.red.2013.10.002

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