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Closed and open economy models of business cycles with marked up and sticky prices

Barro, Robert J. and Tenreyro, Silvana (2006) Closed and open economy models of business cycles with marked up and sticky prices. Economic Journal, 116 (511). pp. 434-456. ISSN 1468-0297

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Identification Number: 10.1111/j.1468-0297.2006.01087.x

Abstract

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.

Item Type: Article
Official URL: http://www.blackwell-synergy.com/loi/ecoj
Additional Information: © 2006 Royal Economic Society
Subjects: H Social Sciences > HB Economic Theory
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Date Deposited: 22 May 2008 10:25
Last Modified: 01 Oct 2010 08:54
URI: http://eprints.lse.ac.uk/id/eprint/4986

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