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Price Bargaining and the Business Cycle

Price Bargaining and the Business Cycle
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Year:    2020

Author:    Wesselbaum, Dennis

Applied Economics Quarterly, Vol. 66 (2020), Iss. 1 : pp. 1–27

Abstract

This paper models a segmented production sector with price bargaining between the intermediate good firm and the final good firm. We show how to incorporate price bargaining in an otherwise standard New Keynesian model and discuss its macroeconomic implications. Estimating the model on U.S. data using Bayesian methods, we find that the intermediate good firm has 50 percent of the bargaining power. We find that the size of the bargaining power determines the quantitative and qualitative macroeconomic effects.

Further, we quantify the size of switching costs: they are equal to about two percent of output. Shocks to switching costs are specific to this model and generate sizable macroeconomic fluctuations.

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Journal Article Details

Publisher Name:    Global Science Press

Language:    German

DOI:    https://doi.org/10.3790/aeq.66.1.1

Applied Economics Quarterly, Vol. 66 (2020), Iss. 1 : pp. 1–27

Published online:    2020-01

AMS Subject Headings:    Duncker & Humblot

Copyright:    COPYRIGHT: © Global Science Press

Pages:    27

Keywords:    Bayesian Estimation Business Cycles Monetary Policy Price Bargaining Switching Costs E31 E52 L10

Author Details

Wesselbaum, Dennis

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Section Title Page Action Price
Dennis Wesselbaum: Price Bargaining and the Business Cycle 1
Abstract 1
1. Introduction 1
2. Model Derivation 4
2.1 Consumption 4
2.2 Production 6
2.3 Price Bargaining 8
2.4 Equilibrium and Calibration 1
3. Estimation 1
3.1 Methodology, Data, and Priors 1
3.2 Posterior Estimates 1
3.3 Impulse Response Functions 1
4. Inspecting the Mechanism 1
4.1 Technology Shocks 1
4.2 Switching Cost Shock 2
5. Conclusion 2
References 2
Appendix 2