The Macroeconomics of Subsistence Points

Morten Ravn, Martín Uribe () and Schmitt-Grohé, Stephanie
Authors registered in the RePEc Author Service: Stephanie Schmitt-Grohe

No 4843, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper explores the macroeconomic consequences of preferences displaying a subsistence point. It departs from the existing related literature by assuming that subsistence points are specific to each variety of goods rather than to the composite consumption good. We show that this simple feature makes the price elasticity of demand for individual goods procyclical. As a result, markups behave countercyclically in equilibrium. This implication is in line with the available empirical evidence.

Keywords: Non-homothetic preferences; Time-varying markups; Business cycles (search for similar items in EconPapers)
JEL-codes: D10 D12 D42 E30 (search for similar items in EconPapers)
Date: 2005-01
New Economics Papers: this item is included in nep-dge and nep-mac
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Related works:
Journal Article: MACROECONOMICS OF SUBSISTENCE POINTS (2008)
Working Paper: The Macroeconomics of Subsistence Points (2004)
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