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Macroeconomics of extensive margins: a simple model

Marta Arespa Castello

No XREAP2011-19, Working Papers from Xarxa de Referència en Economia Aplicada (XREAP)

Abstract: How do monopolistically competitive industries react to shocks in the context of a New Keynesian macro model? I bridge macroeconomics and trade theory by considering market dynamics. I use an analytically tractable closed-economy model with endogenous entry of firms and show the implications of markets structure for the transmission of real shocks on aggregate variables and welfare. Shock sources become crucial for the results: traditional productivity shocks cause an extensive effect on production; shocks on innovation cause an intensive impact. More patient populations bring the economy to a richer market, although it cushions the extensive effect after an innovation shock.

Keywords: Extensive margin; innovation; market dynamics; endogenous entry; real shocks. (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2011-11, Revised 2011-11
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http://www.xreap.cat/RePEc/xrp/pdf/XREAP2011-19.pdf First version, 2011 (application/pdf)
http://www.xreap.cat/RePEc/xrp/pdf/XREAP2011-19.pdf Revised version, 2011 (application/pdf)

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