The competition effect in business cycles

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IMFS Working Paper Series ; No. 51

Classification and Topics

• Classification: Wirtschaft ; Bayesian Analysis: General ; Macroeconomics: Production ; Business Fluctuations; Cycles
• Subject: Bayesian estimation ; business cycles ; competition ; entry ; markups

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lewis, Vivien ; Stevens, Arnoud
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)
• (where): Frankfurt a. M.
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/97714
• URN: urn:nbn:de:hebis:30:3-240835
• Last update: 10.03.2025, 11:42 AM CET