Closed and Open Economy Models of Business Cycles with Marked Up and Sticky Prices

Bibliographic Data

ID9705321
AuthorsRobert J Barros (0000-0003-3761-827X, Harvard University Press), Robert J Barro (Harvard University), Silvana Tenreyro (0000-0002-9816-7452, London School of Economics and Political Science)
Year2006
Volume116
Issue511
Pages434-456
Publication date2006-04-01
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/j.1468-0297.2006.01087.x
OpenAlexW2120790565
LanguageEN
Citations received4
References cited22

Shifts in the extent of competition, which affect markups, are possible sources of aggregate fluctuations. Markups are countercyclical; during booms the economy operates more efficiently. In our benchmark model, markups correspond to the prices of differentiated inputs relative to that of undifferentiated final product. If nominal prices of differentiated goods are relatively sticky, unexpected inflation reduces markups, mimicking the effects of increased competition. Similar effects stem from reductions in markups of foreign intermediates and unexpected inflation abroad. The models imply that prices of less competitive goods are more countercyclical. We find support for this hypothesis using data of four-digit manufacturing industries. Copyright 2006 Royal Economic Society

Benchmark (surveying · Boom · Business cycle · Competition (biology · Econometrics · Economics · Inflation (cosmology · Macroeconomics · Monetary economics · Open economy · Relative price · Economic Growth and Productivity · Economic Theory and Policy · Monetary Policy and Economic Impact

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