Monopolistic Competition, Aggregate Demand Externalities and Real Effects of Nominal Money

Olivier J. Blanchard, Nobuhiro Kiyotaki

NBER Working Paper No. 1770 (Also Reprint No. r1113)
Issued in December 1985
NBER Program(s):Economic Fluctuations and Growth

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.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1770

Published: Blanchard, Olivier and Nobuhiro Kiyotaki. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, Vol. 77, No. 4, September 1987, pp. 647-666.

Users who downloaded this paper also downloaded* these: