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The Price Index Effect and MacroeconomicInefficiency

Published online by Cambridge University Press:  17 August 2016

Corrado Benassi ,
Alessandra Chirco  and
Caterina Colombo
Corrado Benassi
Affiliation:
Università di Bologna
Alessandra Chirco
Affiliation:
Università di Lecce
Caterina Colombo
Affiliation:
Università di Bari and Università di Ferrara
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Summary

In the Dixit-Stiglitz model of monopolistic competition the effects ofindividual pricing decisions on the aggregate price index are neglected.This paper studies the implications of this approximation in terms of theefficiency of macroeconomic equilibria. We show that allowing for theprice-index effect, makes the degree of inefficiency positively correlatedwith the number of agents; it also reduces the scope for New Keynesianoutcomes, such as price rigidity and multiple equilibria.

Résumé

Résumé

Dans le modèle Dixit-Stiglitz de concurrence imparfaite, les effets desdécisions de prix individuels sur l’index agrégé des prix sont négligés. Cetarticle étudie les implications de cette approximation sur l’efficience deséquilibres macroéconomiques. Nous montrons que l’introduction d’un effetindice des prix induit une corrélation positive entre le degréd’inefficience et le nombre des agents; ceci réduit aussi l’espace devalidité pour les résultats néo-keynésiens tels que la rigidité des prix etles équilibres multiples.

Keywords

New Keynesian economicsaggregate demand externalitiesnominal rigidityE12D62Économie néo-keynésienneExternalités de demande agrégéeRigidité nominaleE12D62

Information

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 68 , Issue 3 , 2002 , pp. 385 - 394
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2002 

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Footnotes

*

C. Benassi acknowledges financial support from the University of Bologna

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