Imperfect competition and sunspots
By: by Pengfei Wang and Yi Wen
Contributors: Wen, Yi; Federal Reserve Bank of St. Louis
Series: Working paper -- 2006-015A; Working paper (Federal Reserve Bank of St. Louis : Online) -- 2006-015A.
Publisher: Federal Reserve Bank of St. Louis
Published: 2006
Place of publication: St. Louis, Mo.]
Language: eng
Format: [electronic resource] /
Description: "This paper shows that imperfect competition can be a rich source of sunspots equilibria and coordination failures.  This is demonstrated in a dynamic general equilibrium model that has no major distortions except imperfect competition.  In the absence of fundamental shocks, the model has a unique certainty (fundamental) equilibrium.  But there is also a continuum of stochastic (sunspots) equilibria that are not mere randomizations over fundamental equilibria.  Markup is always counter-cyclical in sunspots equilibria, which is consistent with empirical evidence.  The paper provides a justification for exogenous variations over time in desired markups, which play an important role as a source of cost-push shocks in the monetary policy literature.  We show that fluctuations driven by self-fulfilling expectations (or sunspots) look very similar to fluctuations driven by technology shocks, and we prove that such fluctuations are welfare reducing"--Federal Reserve Bank of St. Louis web site.
Notes: Title from PDF file as viewed on 6/26/2006.

Includes bibliographical references.

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