Imperfect Competition and the Effects of Energy Price Increases on Economic Activity
Julio Rotemberg and
Michael Woodford ()
No 5634, NBER Working Papers from National Bureau of Economic Research, Inc
We show that modifying the standard neoclassical growth model by assuming that competition is imperfect makes it easier to explain the size of the declines in output and real wages that follow increases in the price of oil. Plausibly parameterized models of this type are able to mimic the response of output and real wages in the United States. The responses are particularly consistent with a model of implicit collusion where markups depend positively on the ratio of the expected present value of future profits to the current level of output.
JEL-codes: E32 L71 (search for similar items in EconPapers)
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Published as Journal of Money, Credit, and Banking, Vol. 28, no. 4, part 1, (November 1996), pp. 549-577
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