In the Dixit-Stiglitz model of monopolistic competition the espects of individual pricing decisions on the aggregate price index are neglected. This paper studies the implications of this approximation in terms of the efficiency of macroeconomic equilibria. We show that allowing for the price-index espect, makes the degree of inefficiency positively correlated with the number of agents; it also reduces the scope for New Keynesian outcomes, such as price rigidity and multiple equilibria.
The Price Index Effect and Macroeconomic Inefficiency
COLOMBO, Caterina
2002
Abstract
In the Dixit-Stiglitz model of monopolistic competition the espects of individual pricing decisions on the aggregate price index are neglected. This paper studies the implications of this approximation in terms of the efficiency of macroeconomic equilibria. We show that allowing for the price-index espect, makes the degree of inefficiency positively correlated with the number of agents; it also reduces the scope for New Keynesian outcomes, such as price rigidity and multiple equilibria.File in questo prodotto:
Non ci sono file associati a questo prodotto.
I documenti in SFERA sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
