NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Imperfect Competition and the Effects of Energy Price Increases on Economic Activity

Julio J. Rotemberg, Michael Woodford

NBER Working Paper No. 5634
Issued in June 1996
NBER Program(s):   EFG

We show that modifying the standard neoclassical growth model by assuming that competition is imperfect makes it easier to explain the size of the declines in output and real wages that follow increases in the price of oil. Plausibly parameterized models of this type are able to mimic the response of output and real wages in the United States. The responses are particularly consistent with a model of implicit collusion where markups depend positively on the ratio of the expected present value of future profits to the current level of output.

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Document Object Identifier (DOI): 10.3386/w5634

Published: Journal of Money, Credit, and Banking, Vol. 28, no. 4, part 1, (November 1996), pp. 549-577 citation courtesy of

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