Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5099261 | Journal of Economic Dynamics and Control | 2008 | 18 Pages |
Abstract
We approach business cycles on the basis of extrinsic uncertainty, related to static indeterminacy of free entry oligopolistic equilibria. Firms, producing under increasing returns to scale, compete in prices in contestable markets. The number of active firms varies across sectoral equilibria, which depend upon (correct) producers' conjectures on competitors' actions. Coordination of these conjectures by some Markov chain generates endogenous shocks in markups and productivity. Consumers' expectations may in addition magnify this extrinsic uncertainty. As the source of fluctuations does not rely on dynamic indeterminacy, the required degree of increasing returns may be arbitrarily small, provided goods substitutability within each sector becomes arbitrarily large.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Rodolphe Dos Santos Ferreira, Teresa Lloyd-Braga,