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The macroeconomics of subsistence points

Ravn, M.O.; Schmitt-Rohe, S.; Uribe, M.; (2004) The macroeconomics of subsistence points. (NBER Working Papers 11012). National Bureau of Economic Research: Cambridge, US. 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: Working / discussion paper
Title: The macroeconomics of subsistence points
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.nber.org/papers/w11012
Language: English
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/18849
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