Entry and Markup Dynamics in an Estimated Business Cycle Model

46 Pages Posted: 20 Jan 2014

See all articles by Vivien Lewis

Vivien Lewis

Research Centre; KU Leuven

Arnoud Stevens

National Bank of Belgium

Date Written: October 17, 2013

Abstract

How do changes in market structure affect the US business cycle? We estimate a monetary DSGE model with endogenous fi…rm/product entry and a translog expenditure function by Bayesian methods. The dynamics of net business formation allow us to identify the extent to which desired price markups and in‡flation decrease when entry rises. We …find that a 1 percent increase in the number of competitors lowers desired markups by 0.17 percent. While markup ‡fluctuations due to sticky prices or exogenous shocks account for a large proportion of US infl‡ation variability, endogenous changes in desired markups also play a non-negligible role.

Keywords: Bayesian estimation, business cycles, competition, entry, markups

JEL Classification: C11, E23, E32

Suggested Citation

Lewis, Vivien and Stevens, Arnoud, Entry and Markup Dynamics in an Estimated Business Cycle Model (October 17, 2013). Available at SSRN: https://ssrn.com/abstract=2381526 or http://dx.doi.org/10.2139/ssrn.2381526

Vivien Lewis (Contact Author)

Research Centre ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

KU Leuven ( email )

Oude Markt 13
Leuven, 3000
Belgium

Arnoud Stevens

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

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