Returns to scale, market power, and the nature of price rigidity in new keynesian models with self-fulfilling expectations

Huang, Kevin X. D. and Meng, Qinglai 2014, Returns to scale, market power, and the nature of price rigidity in new keynesian models with self-fulfilling expectations, Journal of money, credit and banking, vol. 46, no. 2-3, pp. 293-320, doi: 10.1111/jmcb.12107.

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Title Returns to scale, market power, and the nature of price rigidity in new keynesian models with self-fulfilling expectations
Author(s) Huang, Kevin X. D.
Meng, Qinglai
Journal name Journal of money, credit and banking
Volume number 46
Issue number 2-3
Start page 293
End page 320
Total pages 28
Publisher Wiley
Place of publication London, Eng.
Publication date 2014-03
ISSN 0022-2879
1538-4616
Keyword(s) returns to scale
market power
price rigidity
self-fulfilling expectations
Summary Increasing returns to scale and firms' market power are two potential sources of sunspot expectations in neoclassical models. We show that in New Keynesian models, returns to scale and market power can have fundamentally different implications for broad macroeconomic issues, including self-fulfilling expectations, depending on the nature of price rigidity. Our findings suggest that the design of stabilization monetary policy can depend on precise knowledge about the economy's real and nominal features. Therefore, a clear understanding of the specific economic environment and its relevance to monetary policymaking for ensuring macroeconomic stability can be an integrated part of monetary policy practice.
Language eng
DOI 10.1111/jmcb.12107
Field of Research 140199 Economic Theory not elsewhere classified
1402 Applied Economics
1502 Banking, Finance And Investment
1401 Economic Theory
Socio Economic Objective 970114 Expanding Knowledge in Economics
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2014, The Ohio State University.
Persistent URL http://hdl.handle.net/10536/DRO/DU:30083620

Document type: Journal Article
Collection: Department of Economics
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