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Relative price fluctuations in a two-sector model with imperfect competition
Affiliation:1. State Key Laboratory of Material Processing and Die and Mould Technology and School of Materials Science and Engineering, Huazhong University of Science and Technology, Wuhan 430074, Hubei, People’s Republic of China;2. School of Mathematics and Physics, China University of Geosciences (Wuhan), Wuhan 430074, Hubei, People’s Republic of China;3. State Key Laboratory of Digital Manufacturing Equipment and Technology and School of Mechanical Science and Engineering, Huazhong University of Science and Technology, Wuhan 430074, Hubei, People’s Republic of China;4. Department of Materials Science and Engineering, The University of Texas at Dallas, Richardson, TX 75080, USA;1. Technocentre Renault, 1 Avenue du Golf, F-78288 Guyancourt, France;2. Institut de Recherche et Coordination Acoustique/Musique (IRCAM-CNRS), 1 Place Igor Stravinsky, F-75004 Paris, France;3. Acoustics Group, Institute of Physics, Carl von Ossietzky University, Carl-von-Ossietzky-Strasse 9-11, G-26111 Oldenburg, Germany;1. Laboratory of Computational Sciences, Department of Informatics and Telecommunications, Faculty of Economy, Management and Informatics, University of Peloponnese, GR-221 00 Tripolis, Greece;2. Department of Mathematics, College of Sciences, King Saud University, P.O. Box 2455, Riyadh 11451, Saudi Arabia;1. School of Pharmacy, Guiyang Medical College, Engineering Research Center for the Development and Application of Ethnic Medicines and TCM, Ministry of Education, Guiyang 550004, China;2. Provincial Key Laboratory of Pharmaceutics in Guizhou Province, Guiyang 550004, China;3. Guiyang Women and Children''s Hospital and Health Institute, Guiyang 550001, China
Abstract:Counter-cyclical fluctuations in the price of investment in consumption units are often attributed to investment-specific technology shocks. This paper looks at an additional source for such fluctuations: sector-specific markup variations, the idea being that pro-cyclical competition and the higher variability of investment compared to consumption pushes down the relative price of investment during expansions. I find that such endogenous movements in sector-specific markups can account for up to about one quarter of the observed fluctuations in the price of investment.
Keywords:Relative price of investment  Firm entry and exit  Endogenous markups  Multi-sector modeling
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