New Keynesian monopolistic competition and objective demand |
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Authors: | Gerd Weinrich |
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Affiliation: | Catholic University of Milan, Largo Gemelli 1, 20123 Milano, Italy |
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Abstract: | The New Keynesian model of monopolistic competition by Blanchard [Blanchard, O., Kiyotaki, N., 1987. Monopolistic competition and the effects of aggregate demand. American Economic Review 77 (4), 647–666] is reformulated according to an objective demand approach making the behavior of all agents fully rational. The revised model is compared with the original model in terms of prices, quantities and welfare. Working with the revised model enhances the validity of the menu-cost argument and, different from the original model, implies that price rigidity is increasing in market concentration. |
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Keywords: | D43 D50 E12 |
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