Articlegreen1992

Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity

524 citations0/0 files storedJournal of Political Economy

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Monetary Policy and Economic Impact Merger and Competition Analysis Economic theories and models

Abstract

We construct a dynamic general equilibrium model in which the typical industry colludes by threatening to punish deviations from an implicitly agreed-on pricing path. We use methods similar to those of Kydland and Prescott to calibrate linearized versions of both our model and an analogous perfectly competitive model. We then compute the two models' predictions concerning the economy's responses to a change in military spending. The responses predicted by the oligopolistic model are closer to the empirical responses estimated with postwar U.S. data than the corresponding predictions of the competitive model.

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References

1978Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence 1986Investment, Capacity Utilization and the Real Business Cycle 1980Formulating and estimating dynamic linear rational expectations models

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