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Macroeconomics of subsistence points

Ravn, M.O.; Schmitt-Grohé, S.; Uribe, M.; (2008) Macroeconomics of subsistence points. Macroeconomic Dynamics , 12 (S1) pp. 136-147. 10.1017/S1365100507070095. Green open access

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Abstract

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.

Type: Article
Title: Macroeconomics of subsistence points
Open access status: An open access version is available from UCL Discovery
DOI: 10.1017/S1365100507070095
Publisher version: http://dx.doi.org/10.1017/S1365100507070095
Language: English
Additional information: © 2008 Cambridge University Press
Keywords: Nonhomothetic preferences, time-varying markups, business cycles
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/18587
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