IDEAS home Printed from https://ideas.repec.org/p/ise/isegwp/wp32000.html
   My bibliography  Save this paper

Multipliers and Imperfect Competition: What is the role of Capital Depreciation

Author

Listed:
  • Luis F. Costa

Abstract

In static general equilibrium models considering imperfectly competitive goods markets, the effectiveness of fiscal policy to stir output is shown to be greater than in the walrasian case. However, labour is the only input in these models. Here, 1 develop a simple intertemporal model allowing us to study the steady-state role of optimal capital stock in the fiscal policy transmission mechanism. 1 demonstrate the results depend strongly on the set of parameter values chosen and on the output definition. Using plausible numerical values the multiplier is larger in the walrasian case for small initial government purchases, and smaller for intermediate values.

Suggested Citation

  • Luis F. Costa, 2000. "Multipliers and Imperfect Competition: What is the role of Capital Depreciation," Working Papers Department of Economics 2000/03, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp32000
    as

    Download full text from publisher

    File URL: https://depeco.iseg.ulisboa.pt/wp/wp32000.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Baxter, Marianne, 1995. "International trade and business cycles," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 35, pages 1801-1864, Elsevier.
    2. Hairault, Jean-Olivier & Portier, Franck, 1993. "Money, New-Keynesian macroeconomics and the business cycle," European Economic Review, Elsevier, vol. 37(8), pages 1533-1568, December.
    3. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    4. repec:bla:scandj:v:98:y:1996:i:2:p:219-31 is not listed on IDEAS
    5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    6. Dixon, Huw, 1987. "A Simple Model of Imperfect Competition with Walrasian Features," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 134-160, March.
    7. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-666, September.
    8. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
    9. Heijdra, Ben J & van der Ploeg, Frederick, 1996. "Keynesian Multipliers and the Cost of Public Funds under Monopolistic Competition," Economic Journal, Royal Economic Society, vol. 106(438), pages 1284-1296, September.
    10. repec:bla:manchs:v:69:y:2001:i:4:p:418-39 is not listed on IDEAS
    11. Richard Startz, 1989. "Monopolistic Competition as a Foundation for Keynesian Macroeconomic Models," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 737-752.
    12. Mankiw, N. Gregory, 1988. "Imperfect competition and the Keynesian cross," Economics Letters, Elsevier, vol. 26(1), pages 7-13.
    13. Julio J. Rotemberg & Michael Woodford, 1993. "Dynamic General Equilibrium Models with Imperfectly Competitive Product Markets," NBER Working Papers 4502, National Bureau of Economic Research, Inc.
    14. repec:bla:scandj:v:98:y:1996:i:4:p:521-39 is not listed on IDEAS
    15. Reinhorn, Leslie J., 1998. "Imperfect competition, the Keynesian cross, and optimal fiscal policy," Economics Letters, Elsevier, vol. 58(3), pages 331-337, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luis F. Costa, "undated". "Multipliers and Capital: What is the role of Imperfect Competition?," Discussion Papers 99/14, Department of Economics, University of York.
    2. Luís F. Costa, "undated". "Fiscal Policy in a Small Open Economy With Cournot Competition in the Non-Tradable Good Sector," Discussion Papers 97/17, Department of Economics, University of York.
    3. Luís F. Costa & Huw Dixon, 2009. "Fiscal Policy under Imperfect Competition: A Survey," Working Papers Department of Economics 2009/25, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    4. Coto-Martinez, Javier, 2006. "Public capital and imperfect competition," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 349-378, January.
    5. Lai, Ching-chong & Chin, Chi-ting & Chang, Shu-hua, 2010. "Vertical separation versus vertical integration in a macroeconomic model with imperfect competition," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 590-602, October.
    6. Emmanuelle Taugourdeau, 2002. "Imperfect Competition and Fiscal Policy Transmission in a Two-Country Economy," Open Economies Review, Springer, vol. 13(1), pages 47-71, January.
    7. Luís F. Costa, 2004. "Endogenous Markups and Fiscal Policy," Manchester School, University of Manchester, vol. 72(s1), pages 55-71, September.
    8. Jim Malley & Hassan Molana, 2000. "Monopolistic Competition, Efficiency Wages and Perverse Effects of Demand Shock," Working Papers 2000_20, Business School - Economics, University of Glasgow, revised Feb 2001.
    9. Luís Costa, 2007. "GDP steady-state multipliers under monopolistic competition revisited," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 6(3), pages 181-204, December.
    10. Jinill Kim, 1998. "Monetary policy in a stochastic equilibrium model with real and nominal rigidities," Finance and Economics Discussion Series 1998-02, Board of Governors of the Federal Reserve System (U.S.).
    11. Francis E. Warnock, 1998. "Idiosyncratic tastes in a two-country optimizing model: implications ; of a standard presumption," International Finance Discussion Papers 631, Board of Governors of the Federal Reserve System (U.S.).
    12. Wang, Vey & Lai, Chung-Hui, 2011. "Franchise fee, competition and economic growth," Economic Modelling, Elsevier, vol. 28(5), pages 2090-2099, September.
    13. Partha Sen, 2009. "Fixed Costs, The Balanced Budget Multiplier And Welfare," The Japanese Economic Review, Japanese Economic Association, vol. 60(3), pages 395-404, September.
    14. Chang, Shu-hua & Lai, Ching-chong, 2016. "Vertical separation versus vertical integration in an endogenously growing economy," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 359-380.
    15. Huw David Dixon, 2000. "Modelling Market Power in Labour and Product Markets in a Dynamic Economy," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 4(2), pages 104-121, Winter.
    16. Luís F. Costa & Nuno Palma, 2006. "Productive Public Expenditure and Imperfect Competition with Endogenous Price Markup: Comment," Working Papers Department of Economics 2006/24, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    17. Carlos Borondo, 1994. "La rigidez nominal de los precios de la Nueva Economía Keynesiana: una panorámica," Investigaciones Economicas, Fundación SEPI, vol. 18(2), pages 245-288, May.
    18. M. Marzo, 2001. "Evaluating Monetary Policy Regimes: the Role of Nominal Rigidities," Working Papers 411, Dipartimento Scienze Economiche, Universita' di Bologna.
    19. Lockwood, Ben, 2003. "Imperfect competition, the marginal cost of public funds and public goods supply," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1719-1746, August.
    20. Hassan Molana & Junxi Zhang, 2001. "Market Structure and Fiscal Policy Effectiveness," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(1), pages 147-164, March.

    More about this item

    Keywords

    Multiplier; Fiscal Policy; Imperfect Competition;
    All these keywords.

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E0 - Macroeconomics and Monetary Economics - - General
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • H6 - Public Economics - - National Budget, Deficit, and Debt

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ise:isegwp:wp32000. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Vitor Escaria (email available below). General contact details of provider: https://aquila.iseg.ulisboa.pt/aquila/departamentos/EC .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.