Closed and Open Economy Models of Business Cycles with Marked Up and Sticky Prices / Robert J. Barro, Silvana Tenreyro.

Format:

Book

Author/Creator:

Barro, Robert J.

Contributor:

National Bureau of Economic Research.

Tenreyro, Silvana.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8043.

NBER working paper series no. w8043

Language:

English

Subjects (All):

Business cycles--Econometric models.

Business cycles.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Cambridge, Massachussetts : National Bureau of Economic Research, [2000]

Summary:

Shifts in the extent of competition, which affect markup ratios, are possible sources of aggregate business fluctuations. Markups are countercyclical, and booms are times at which the economy operates more efficiently. We begin with a real model in which markup ratios correspond to the prices of differentiated intermediate inputs relative to the price of undifferentiated final product. If the nominal prices of the differentiated goods are relatively sticky, then unexpected inflation reduces the relative price of intermediates and thereby mimics the output effects from an increase in competition. In an open economy, domestic output is stimulated by reductions in the relative price of foreign intermediates and, therefore, by unexpected inflation abroad. The various versions of the model imply that the relative prices of less competitive goods move countercyclically. We find support for this hypothesis from price data of four-digit manufacturing industries.

Notes:

Print version record

December 2000.