Imperfect Competition and the Effects of Energy Price Increases on Economic Activity

JOURNAL OF MONEY, CREDIT, AND BANKING, Vol. 28, No. 4, Part 1, November 1996

Posted: 11 May 1998

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)

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Abstract

We show that modifying the standard neoclassical growth model by assuming that competition is imperfect makes it easier to explain the size of the declines in output and real wages that follow increases in the price of oil. Plausibly parameterized models of this type are able to mimic the response of output and real wages in the United States. The responses are particularly consistent with a model of implicit collusion where markups depend positively on the ratio of the expected present value of future profits to the current level of output.

JEL Classification: L95

Suggested Citation

Rotemberg, Julio J. and Woodford, Michael, Imperfect Competition and the Effects of Energy Price Increases on Economic Activity. JOURNAL OF MONEY, CREDIT, AND BANKING, Vol. 28, No. 4, Part 1, November 1996. Available at SSRN: https://ssrn.com/abstract=4052

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
United States

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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