Macroeconomics of Subsistence Points
Macroeconomic Dynamics, 2008, 12, 136-147
RAVN, Morten O., SCHMITT-GROHE, Stephanie, URIBE, Martin, Macroeconomics of Subsistence Points, Macroeconomic Dynamics, 2008, 12, 136-147 - http://hdl.handle.net/1814/16600
Retrieved from Cadmus, EUI Research Repository
This paper explores the macroeconomic consequences of preferences displaying a subsistence point. It departs from the existing related literature by assuming that subsistence points are specific to each variety of goods rather than to the composite consumption good. We show that this simple feature makes the price elasticity of demand for individual goods procyclical. As a result, markups behave countercyclically in equilibrium. This implication is in line with the available empirical evidence.
Cadmus permanent link: http://hdl.handle.net/1814/16600
Full-text via DOI: 10.1017/S1365100507070095
Publisher: Cambridge Univ Press
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