A Mixed Industrial Structure Magnifies the Importance of Menu Costs

Huw Dixon and Claus Thustrup Hansen
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Claus Thustrup Hansen: University of Copenhagen Institute of Economics
Authors registered in the RePEc Author Service: Claus Thustrup Kreiner

No 97-11, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: New Keynesian literature assumes symmetric industrial structure when analysing explanations of money non-neutrality. This paper analyses the impact of modifying this assumption by allowing for a mixed industrial structure; some industries are characterized by monopolistic competition, others by perfect competition. The mixed industrial structure implies misallocation of labour between the different industries which may contribute to explanations of non-neutrality of money. Following a 5% money increase, the menu costs needed for non-neutrality may be 40 times smaller and ratio of welfare gain over private loss more than 100 times larger than in the corresponding model with a symmetric structure.

Keywords: New Keynesian economics; industrial structure (search for similar items in EconPapers)
JEL-codes: D40 E30 L16 (search for similar items in EconPapers)
Pages: 24 pages
Date: 1997-09
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Published in: European Economic Review 43(8) 1999, 1475-1499

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http://dx.doi.org/10.1016/S0014-2921(98)00029-4

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Journal Article: A mixed industrial structure magnifies the importance of menu costs (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:9711

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