Monopolistic Competition, Aggregate Demand Externalities and Real Effects Of Nominal Money

Olivier Blanchard and Nobuhiro Kiyotaki

No 292672, SSRI Workshop Series from University of Wisconsin-Madison, Social Systems Research Institute

Abstract: A long standing issue in macroeconomics is that of the relation of imperfect competition to fluctuations in output. In this paper we examine the relation between monopolistic competition and the role of aggregate demand in the determination of output. We first show that monopolistically competitive economies exhibit an aggregate demand externality. We then show that, because of this externality, small menu costs, that is small costs of changing prices may lead to large effects of aggregate demand on output and on welfare.

Keywords: Research; Methods/; Statistical; Methods (search for similar items in EconPapers)
Pages: 38
Date: 1985-11
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Citations: View citations in EconPapers (10)

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Working Paper: Monopolistic Competition, Aggregate Demand Externalities and Real Effects of Nominal Money (1985)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwssri:292672

DOI: 10.22004/ag.econ.292672

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