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Search in the Product Market and the Real Business Cycle

Author

Listed:
  • Thomas Y. MATHA

    (CENTRAL BANK OF LUXEMBOURG, Economics and Research Department)

  • Olivier PIERRARD

    (CENTRAL BANK OF LUXEMBOURG, Economics and Research Department and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract
Empirical evidence suggests that most firms operate in imperfectly competitivemarkets. We develop a search-matching model between wholesalers and retailers. Firms face search costs and form long-term relationships. Price bargain results in both wholesaler and retailer markups, depending on firms’ relative bargaining power. We simulate the model to explore the role of product market search frictions in business cycles. We show that the way search costs are modelled is crucial to provide a realistic picture of firms’ business environment and improve the cyclical properties of an otherwise standard real business cycle model.

Suggested Citation

  • Thomas Y. MATHA & Olivier PIERRARD, 2009. "Search in the Product Market and the Real Business Cycle," LIDAM Discussion Papers IRES 2009019, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2009019
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2009019.pdf
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    References listed on IDEAS

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    Cited by:

    1. Laurent Maurin & Moreno Roma & Igor Vetlov, 2011. "Profit Dynamics across the Largest Euro Area countries and Sectors," Bank of Lithuania Working Paper Series 12, Bank of Lithuania.
    2. David M. Arseneau & Ryan Chahrour & Sanjay K. Chugh & Alan Finkelstein Shapiro, 2015. "Optimal Fiscal and Monetary Policy in Customer Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(4), pages 617-672, June.
    3. Mirko Abbritti, 2012. "Product Market Frictions, Bargaining and Pass-Through," Faculty Working Papers 19/12, School of Economics and Business Administration, University of Navarra.
    4. Wesselbaum, Dennis, 2010. "Price bargaining, the persistence puzzle, and monetary policy," Kiel Working Papers 1629, Kiel Institute for the World Economy (IfW Kiel).
    5. Mirko Abbritti & Tommaso Trani, 2014. "Search and Bargaining in the Product Market and Price Rigidities," Faculty Working Papers 09/14, School of Economics and Business Administration, University of Navarra.
    6. Ngotran, Duong & Ngo, Tien, 2013. "Retail Sector and Economic Development," MPRA Paper 61590, University Library of Munich, Germany, revised Aug 2014.
    7. Abbritti, Mirko & Aguilera-Bravo, Asier & Trani, Tommaso, 2021. "Long-term business relationships, bargaining and monetary policy," Economic Modelling, Elsevier, vol. 101(C).

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    More about this item

    Keywords

    Business cycle; Frictions; Product market; Price bargain;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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