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Imperfect Competition and Macroeconomics: A Survey

Huw Dixon and Neil Rankin
Oxford Economic Papers
New Series, Vol. 46, No. 2 (Apr., 1994), pp. 171-199
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2663646
Page Count: 29
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Imperfect Competition and Macroeconomics: A Survey
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Abstract

This survey outlines the general lessons of recent literature on imperfectly competitive macroeconomics for the theory of monetary and fiscal policy. A general framework is presented which nests most of the existing literature. Although money is of itself neutral, the presence of menu costs, non-unit-elastic expectations, or sectoral nominal rigidities results in an output- and welfare-increasing role for monetary policy. Imperfect competition alone is enough for fiscal policy to affect output, but without monetary non-neutrality the effect is as likely to be negative as positive. Nevertheless, fiscally induced output increases are likely to be welfare increasing, unlike in competitive economies.

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