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- Title
Price Inertia in a Macroeconomic Model of Monopolistic Competition.
- Authors
van de Klundert, Th.; Peters, P.
- Abstract
The paper discusses the consequences of price-setting by firms under monopolistic competition in dynamic models. It is assumed that costs of price adjustment are speed-dependent. The Keynesian regime prevails when firms choose a point on the demand curve. If real labour costs are relatively high, customers may be rationed. After analysing firm behaviour in a partial equilibrium setting, demand is made endogeneous in a full-scope macroeconomic model. Numerical examples are worked through by applying the technique of multiple shooting. It is found that relatively small costs of price adjustment give rise to substantial macroeconomic effects.
- Subjects
PRICES; MONOPOLISTIC competition; MACROECONOMICS; MONOPOLIES; KEYNESIAN economics; DEMAND function
- Publication
Economica, 1988, Vol 55, Issue 218, p203
- ISSN
0013-0427
- Publication type
Article
- DOI
10.2307/2554468