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The Ramsey model with monopolistic competition and general preferences

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  • Etro, Federico

Abstract

I extend the Ramsey model of consumption and growth to general preferences over a variety of goods supplied under monopolistic competition, and derive the implications for markup variability and macroeconomic dynamics. The model delivers a modified Euler equation that affects the short run dynamics of consumption. When the relative risk aversion is decreasing, monopolistic competition generates countercyclical markups and (compared to perfect competition) magnifies the impact of shocks on consumption through new intertemporal substitution mechanisms.

Suggested Citation

  • Etro, Federico, 2016. "The Ramsey model with monopolistic competition and general preferences," Economics Letters, Elsevier, vol. 145(C), pages 141-144.
    • Handle: RePEc:eee:ecolet:v:145:y:2016:i:c:p:141-144
    DOI: 10.1016/j.econlet.2016.05.017
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    Cited by:

    1. Etro, Federico, 2020. "Technological Foundations for Dynamic Models with Endogenous Entry," European Economic Review, Elsevier, vol. 128(C).
    2. Etro, Federico, 2019. "The Romer model with monopolistic competition and general technologies," Economics Letters, Elsevier, vol. 181(C), pages 1-6.
    3. Cavallari, Lilia & Etro, Federico, 2020. "Demand, markups and the business cycle," European Economic Review, Elsevier, vol. 127(C).
    4. Federico Etro, 2018. "Macroeconomics with Endogenous Markups and Optimal Taxation," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 378-406, October.
    5. Etro, Federico, 2017. "The Heckscher–Ohlin model with monopolistic competition and general preferences," Economics Letters, Elsevier, vol. 158(C), pages 26-29.
    6. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2019. "Monopoly Power and Endogenous Product Variety: Distortions and Remedies," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(4), pages 140-174, October.

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    More about this item

    Keywords

    Ramsey model; Monopolistic competition; Variable markups; Morishima elasticity of substitution; Real Business Cycle;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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