Ravn, M.O.;
Schmitt-Grohé, S.;
Uribe, M.;
(2008)
Macroeconomics of subsistence points.
Macroeconomic Dynamics
, 12
(S1)
pp. 136-147.
10.1017/S1365100507070095.
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Abstract
This paper explores the macroeconomic consequences of preferences displaying a subsistence point. It departs from the existing related literature by assuming that subsistence points are specific to each variety of goods rather than to the composite consumption good. We show that this simple feature makes the price elasticity of demand for individual goods procyclical. As a result, markups behave countercyclically in equilibrium. This implication is in line with the available empirical evidence.
| Type: | Article |
|---|---|
| Title: | Macroeconomics of subsistence points |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1017/S1365100507070095 |
| Publisher version: | http://dx.doi.org/10.1017/S1365100507070095 |
| Language: | English |
| Additional information: | © 2008 Cambridge University Press |
| Keywords: | Nonhomothetic preferences, time-varying markups, business cycles |
| UCL classification: | UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics |
| URI: | https://discovery-pp.ucl.ac.uk/id/eprint/18587 |
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