Advertising and Business Cycle Fluctuations

Benedetto Molinari and Francesco Turino

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: This paper provides new empirical evidence for quarterly U.S. aggregate advertisingexpenditures, showing that advertising has a well defined pattern over the BusinessCycle. To understand this pattern we develop a general equilibrium model wheretargeted advertising increases the marginal utility of the advertised good. Advertisingintensity is endogenously determined by profit maximizing firms. We embed thisassumption into an otherwise standard model of the business cycle withmonopolistic competition. We find that advertising affects the aggregate dynamics ina relevant way, and it exacerbates the welfare costs of fluctuations for the consumer.Finally, we provide estimates of our setup using Bayesian techniques.

Keywords: Advertising; DSGE model; Business Cycle fluctuations; Bayesian (search for similar items in EconPapers)
JEL-codes: D11 E32 J22 M37 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2009-03
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-mac, nep-mic and nep-mkt
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Citations: View citations in EconPapers (8)

Published by Ivie

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http://www.ivie.es/downloads/docs/wpasad/wpasad-2009-09.pdf Fisrt version / Primera version, 2009 (application/pdf)

Related works:
Working Paper: Advertising and Business Cycle Fluctuations (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2009-09

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