Imperfect competition and indeterminacy of aggregate output
By: by Pengfei Wang and Yi Wen
Contributors: Wen, Yi; Federal Reserve Bank of St. Louis
Series: Working paper -- 2006-017A; Working paper (Federal Reserve Bank of St. Louis : Online) -- 2006-017A.
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 lead to indeterminacy in aggregate output in a standard DSGE model that features no distortions except imperfect competition.  Indeterminacy arises in the model from the composition of aggregate output.  In sharp contrast to the indeterminacy literature pioneered by Benhabib and Farmer (1994) and Gali (1994), indeterminacy in our model is global (i.e., independent of the eigenvalues near the steady state); hence it is robust to parameter values of the utility function and production technologies.  In addition, sunspots shocks to expectations in our model can be autocorrelated.  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.  Our model can explain procyclical marginal cost and procyclical labor productivity simultaneously, and it outperforms a standard RBC model driven by technology shocks in explaining fluctuations in the labor market"--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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