Premium
ENTRY AND EXIT, PRODUCT VARIETY, AND THE BUSINESS CYCLE
Author(s) -
CHATTERJEE SATYAJIT,
COOPER RUSSELL
Publication year - 2014
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12091
Subject(s) - economics , monopolistic competition , microeconomics , elasticity of substitution , consumption (sociology) , capital good , product market , stock (firearms) , investment goods , aggregate demand , business cycle , investment (military) , monetary economics , production (economics) , public good , macroeconomics , monetary policy , mechanical engineering , social science , sociology , incentive , law , engineering , monopoly , politics , political science
We study the stochastic behavior of a dynamic general equilibrium model with monopolistic competition. Each seller sells his product in the consumption goods as well as the investment goods market and has market power in both. Consumers derive utility from a constant elasticity of substitution (CES) aggregate of all the consumption goods and augment their capital stock by a CES aggregate of all the investment goods. We analyze the equilibrium of this economy allowing for an endogenous determination of the number of firms and therefore of products. The principal effect we wish to highlight is the endogenous propagation and magnification of technology and preference disturbances through product space variations . ( JEL E32, D43, L16)