Working Paper: NBER ID: w5634
Authors: Julio J. Rotemberg; Michael Woodford
Abstract: We show that modifying the standard neoclassical growth model by assuming that competition is imperfect makes it easier to explain the size of the declines in output and real wages that follow increases in the price of oil. Plausibly parameterized models of this type are able to mimic the response of output and real wages in the United States. The responses are particularly consistent with a model of implicit collusion where markups depend positively on the ratio of the expected present value of future profits to the current level of output.
Keywords: energy prices; economic activity; imperfect competition; output; real wages
JEL Codes: E32; Q41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Oil Price Increase (Q31) | Output Decline (O49) |
| Oil Price Increase (Q31) | Real Wages Decline (J31) |