TY  - JOUR
AU  - Blanchard,Olivier J.
AU  - Kiyotaki,Nobuhiro
TI  - Monopolistic Competition, Aggregate Demand Externalities and Real Effects of Nominal Money
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1770
PY  - 1989
Y2  - February 1989
UR  - http://www.nber.org/papers/w1770
L1  - http://www.nber.org/papers/w1770.pdf
N1  - Author contact info:
Olivier J. Blanchard
International Monetary Fund
Economic Counsellor and Director
Research Department
700 19th Street, NW
Rm. 10-700
Washington DC, 20431
Tel: 202-623-7825
Fax: 202-623-7271
E-Mail: blanchar@mit.edu

Nobuhiro Kiyotaki
Department of Economics
Princeton University
Fisher Hall
Princeton, NJ 08544-1021
Tel: 609-258-4000
Fax: 609-258-6419
E-Mail: kiyotaki@princeton.edu
AB  - A long standing issue in macroeconomics is that of the relation of imperfect competition to fluctuations in output. In this paper we examine the relation between monopolistic competition and the role of aggregate demand in the determination of output. We first show that monopolistically competitive economies exhibit an aggregate demand externality. We then show that, because of this externality, small menu costs, that is small costs of changing prices may lead to large effects of aggregate demand on output and on welfare.
ER  -