A mixed industrial structure magnifies the importance of menu costs

Dixon, Huw David ORCID: https://orcid.org/0000-0002-9875-8965 and Hansen, Claus Thustrup 1999. A mixed industrial structure magnifies the importance of menu costs. European Economic Review 43 (8) , pp. 1475-1499. 10.1016/S0014-2921(98)00029-4

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Abstract

New Keynesian literature assumes symmetric industrial structure when analysing explanations of money non-neutrality. This paper analyses the impact of modifying this assumption by allowing for a mixed industrial structure; some industries are characterized by monopolistic competition, others by perfect competition. The mixed industrial structure implies misallocation of labour between the different industries which may contribute to explanations of non-neutrality of money. Following a 5% money increase, the menu costs needed for non-neutrality may be 40 times smaller and ratio of welfare gain over private loss more than 100 times larger than in the corresponding model with a symmetric structure.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Schools > Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Uncontrolled Keywords:	New Keynesian economics; Industrial structure
Publisher:	Elsevier
ISSN:	0014-2921
Last Modified:	24 Oct 2022 12:00
URI:	https://orca.cardiff.ac.uk/id/eprint/50057

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