Non-price Competition, Real Rigidities and Inflation Dynamics

Francesco Turino

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

Abstract: In the last decade, the analytical progress achieved in the New Keynesian literature has been remarkable. Many of the early assumptions have been relaxed, leading to medium-scale macroeconomic models that are now able to capture many features of real-world data. Nevertheless, modern-day New Keynesian models still assume, as did their early counterparts, that firms compete in the market with no tools other than their relative prices. In particular, this literature has so far neglected the consequences of extending competition between firms to the non-price dimension. This paper tries to fill this gap by enriching the canonical New Keynesian framework to include both price and non-price competition. This has important consequences for the analysis of inflation dynamics, modifying in particular the inflation-marginal cost relationship. As a general result, we show that any activity by firms that boosts demand for their products, without directly affecting their prices, dampens the overall degree of real rigidities in price-setting.

Keywords: Non-price competition; inflation dynamics; real rigidity (search for similar items in EconPapers)
JEL-codes: E31 L11 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2009-07
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mic and nep-mkt
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Citations: View citations in EconPapers (5)

Published by Ivie

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http://www.ivie.es/downloads/docs/wpasad/wpasad-2009-17.pdf Fisrt version / Primera version, 2009 (application/pdf)

Related works:
Journal Article: Non-Price Competition, Real Rigidities and Inflation Dynamics (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2009-17

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