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- Title
Price-setting behaviour, competition, and mark-up shocks in the New Keynesian model.
- Authors
Khan, Hashmat
- Abstract
The article reports on recent research and policy discussions, which have noted that the potentially increased competition among firms since the 1990s may affect inflation and economic activity. Deregulation, globalisation and reduction in trade barriers are often discussed as drivers underlying this structural change. The paper uses the standard New Keynesian framework, based on optimising behaviour of monopolistically competitive firms which face constraints on nominal price adjustments. In this framework, the elasticity of substitution between goods captures the degree of competition among firms. A rise in this elasticity implies that goods in the economy are relatively closer substitutes for each other, indicating more intense competition between firms.
- Subjects
UNITED Kingdom; GLOBALIZATION; ECONOMIC activity; BUSINESS cycles; INDUSTRIAL policy; TRADE regulation; NONTARIFF trade barriers
- Publication
Bank of England Quarterly Bulletin, 2004, Vol 44, Issue 4, p464
- ISSN
0005-5166
- Publication type
Article