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Monopolistic Competition and the Effects of Aggregate Demand

Olivier Jean Blanchard and Nobuhiro Kiyotaki
The American Economic Review
Vol. 77, No. 4 (Sep., 1987), pp. 647-666
Stable URL: http://www.jstor.org/stable/1814537
Page Count: 20
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Monopolistic Competition and the Effects of Aggregate Demand
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Abstract

How important is monopolistic competition to an understanding of the effects of aggregate demand on output? We ask the question at three levels. Can monopolistic competition, by itself, explain why aggregate demand movements affect output? Can it, together with other imperfections, generate effects of aggregate demand in a way that perfect competition cannot? If so, can it give an accurate account of the response of the economy to aggregate demand movements? The answers are no, yes, and yes.

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