Variety Matters

Oscar Pavlov and Mark Weder

No 2011-23, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

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 adresses this issue. It extends Gali'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)
Pages: 26 pages
Date: 2011-05
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (6)

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Journal Article: Variety matters (2012)
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