The Macroeconomics of Subsistence Points
NBER Working Paper No. 11012
This paper explores the macroeconomic consequences of preferences displaying a subsistence point. It departs from the existing related literature by assuming that subsistence points are specific to each variety of goods rather than to the composite consumption good. We show that this simple feature makes the price elasticity of demand for individual goods procyclical. As a result, markups behave countercyclically in equilibrium. This implication is in line with the available empirical evidence.
Published: Ravn, Morten, Stephanie Schmitt-Grohe and Martin Uribe. “The Macroeconomics of Subsistence Points.” Macroe-conomic Dynamics 12 (2008): 136-147.