Dynamic General Equilibrium Models with Imperfectly Competitive Product Markets

63 Pages Posted: 17 May 2001 Last revised: 29 Jul 2001

See all articles by Julio J. Rotemberg

Julio J. Rotemberg

Harvard University, Business, Government and the International Economy Unit (deceased); National Bureau of Economic Research (NBER) (deceased)

Michael Woodford

Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Date Written: October 1993

Abstract

This paper discusses the consequences of introducing imperfectly competitive product markets into an otherwise standard neoclassical growth model. We pay particular attention to the consequences of imperfect competition for the explanation of fluctuations in aggregate economic activity. Market structures considered include monopolistic competition, the 'customer market' model of Phelps and Winter, and the implicit collusion model of Rotemberg and Saloner. Empirical evidence relevant to the numerical calibration of imperfectly competitive models is reviewed. The paper then analyzes the effects of imperfect competition upon the economy's response to several kinds of real shocks, including technology shocks, shocks to the level of government purchases, and shocks that change individual producers' degree of market power. It also discusses the role of imperfect competition in allowing for fluctuations due solely to self-fulfilling expectations.

Suggested Citation

Rotemberg, Julio J. and Woodford, Michael, Dynamic General Equilibrium Models with Imperfectly Competitive Product Markets (October 1993). NBER Working Paper No. w4502. Available at SSRN: https://ssrn.com/abstract=270368

Julio J. Rotemberg (Contact Author)

Harvard University, Business, Government and the International Economy Unit (deceased) ( email )

Cambridge, MA
United States
617-495-1015 (Phone)
617-496-5994 (Fax)

National Bureau of Economic Research (NBER) (deceased)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Michael Woodford

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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