The competition effect in business cycles
How do changes in market structure affect the US business cycle? We estimate a monetary DSGE model with endogenous rm/product entry and a translog expenditure function by Bayesian methods. The dynamics of net business formation allow us to identify the 'competition effect', by which desired price markups and inflation decrease when entry rises. We find that a 1 percent increase in the number of competitors lowers desired markups by 0.18 percent. Most of the cyclical variability in inflation is driven by markup fluctuations due to sticky prices or exogenous shocks rather than endogenous changes in desired markups.
| Author: | Vivien Lewis, Arnoud Stevens |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-240835 |
| Series (Serial Number) | Working Paper Series : Institute for Monetary and Financial Stability (51) |
| Publisher: | Johann Wolfgang Goethe-Univ., Inst. for Monetary and Financial Stability |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Date of Publication (online): | 03.04.2012 |
| Year of first Publication: | 2012 |
| Publishing Institution: | Univ.-Bibliothek Frankfurt am Main |
| Tag: | Bayesian estimation; business cycles; competition; entry; markups |
| Pagenumber: | 32 |
| HeBIS PPN: | 311797504 |
| Institutes: | Institute for Monetary and Financial Stability |
| Dewey Decimal Classification: | 330 Wirtschaft |
| JEL-Classification: | C11 Bayesian Analysis |
| E23 Production | |
| E32 Business Fluctuations; Cycles | |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Veröffentlichungsvertrag für Publikationen ohne Print on Demand |
