NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Critical Assessment of the Role of Imperfect Competition in Macroeconomics

Dennis W. Carlton

NBER Working Paper No. 5782
Issued in October 1996
NBER Program(s):   EFG   IO

New Keynesian models and some models of growth rely on market power for their results. This sole focus on market power as the source for certain macroeconomic phenomena is misguided both theoretically and empirically. New Keynesian multipliers are closely related to standard measures of deadweight loss used in the public finance literature. The theoretical analysis shows that a standard competitive model with taxes exactly reproduces the multipliers in the new Keynesian models, and the empirical evidence strongly suggests that taxes, not market power, will be the far more important influence on explaining short-run fluctuations in GNP. Theory and the empirical evidence suggest that the existence of intellectual property rights is likely to be a more important determinant of innovation than market power. Finally, the paper shows how models that incorporate the cost of market making, durability and dynamic policies, and timing based on the option value of resolving uncertainty can yield more valuable insights into macroeconomic phenomena than can models with market power.

download in pdf format
   (1809 K)

email paper

This paper is available as PDF (1809 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5782

Published: in Market Behaviour and Macroeconomic Modelling, Edited by Steven Brakman, Hans Van Ees and Simon Kuipers St. Martin's Press, 1998

Users who downloaded this paper also downloaded these:
Carlton w1813 The Rigidity of Prices
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us