The welfare cost of monopolistic competition: a quantitative assessment |
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Authors: | Julien Matheron Tristan-Pierre Maury |
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Institution: | Banque de France, DGEI-DEER, Centre de recherche (41-1391), 31 Rue Croix des Petits-Champs, 75049, Paris Cedex 01, France |
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Abstract: | This paper quantifies the welfare cost of monopolistic competition in a simple parametric class of endogenous growth models, embedding the neoclassical growth framework as a special case. We put particular emphasis on taking transitional dynamics into account. In doing so, we develop an original two-step numerical procedure to compute the value function. We find for conservative calibrations that the welfare cost of monopolistic competition can be anywhere between 0.4 and 1.2% of consumption, depending on whether labor is elastically or inelastically supplied. |
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Keywords: | Monopolistic competition Endogenous growth Welfare |
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