Caterina Colombo

The new Keynesian economics

Preface 1. From Keynesian to New Keynesian economics. 2. Keynesian microfoundations in historical perspectives. Part I Real Rigidities 3. The labour market and real wage rigiditry. 4. Credit rationing and imperfect capital markets. 5. Real rigidities in the goods market. Part II Nominal Rigidities Introduction 6. Rational models of irrational behaviour. 7. Price setting with adjustment cost. 8. Real and nominal price rigidity: further issues. Part III Coordination Failures and Hysteresis 9. Coordination failures 10. Hysteresis Conclusions.

Vertical Differentiation and the Distribution of Income

The paper analyses the effects of income concentration on the behaviour of a duopoly with vertical product differentiation and uncovered market. By using a trapezoid distribution, we solve explicitly for market equilibrium as a function of a mean preserving spread of the income distribution. We show that overall more concentrated incomes imply stronger product differentiation, as the presence of a large share of middle-income consumers stimulates a price competition, whose effects are dampened through an enlargement of the quality spread. While the high-quality advantage and market coverage increase unambiguously in the degree of income concentration, the behaviour of prices is non-monotone in the distribution parameter.

Organizational Structure and the Choice of Price Versus Quantity in a Mixed Duopoly

We consider the choice of price/quantity by a public and a private firm in a mixed differentiated duopoly. First, we study the way in which the strategic choice of the market variable is affected by different given organizational structures (managerial or entrepreneurial) of the public and the private firm. Second, we investigate how the price/quantity choice interacts with the endogenous choice of the organizational structure, thus determining a subgame perfect equilibrium at which firms choose to behave as price-setters and to adopt a managerial structure.

COMPETITION AND THE STRATEGIC CHOICE OF MANAGERIAL INCENTIVES: THE RELATIVE PERFORMANCE CASE

In this paper we study the role of market competitiveness in a strategic delegation game in which owners delegate output decisions to managers interested in the firms relative performance. In particular we study how the optimal delegation scheme - i.e. the distortion from pure profit maximization - is affected by market concentration and the elasticity of market demand. We show that these two indexes of market competitiveness do not alter managerial incentives in the same way: while the optimal degree of delegation decreases as the market becomes less concentrated, it increases as demand becomes more elastic.

Mixed Industrial Structure and Short-Run Fiscal Multiplier

Existing studies on the fiscal multiplier under imperfect competition assume a symmetric market structure with identical firms. This paper examines the fiscal policy implications of introducing a multisectoral economy, where a composite commodity is offered in many varieties within a market of monopolistic competition and a homogeneous good is produced in a perfectly competitive environment. Within the context of this mixed industrial structure we show that the size of the short-run multiplier crucially depends on the composition of public expenditure chosen by the government.

The impact of the crisis on fiscal convergence in the EU: the early signs

Abstract This article investigates the early signs of the impact of the financial crisis on fiscal convergence within the EU. Over the 2004–2012 period, we offer a comprehensive picture of the convergence pattern by considering the key fiscal aggregates and the main economic and functional components of total government expenditure. Indeed, the effects of the crisis have been transmitted differently on the fiscal frame in the EU, signalling an overall tendency to diverge of the Periphery EU countries from the Core. In particular, it emerges a greater persistence in the Periphery countries of the backlash of the crisis on government budgets and disarranging effects on government spending, with crowding out of productive components of public expenditure

Beyond the Uniform Distribution: Equilibrium Prices and Qualities in a Vertically Differentiated Duopoly

The paper proves the existence of a subgame perfect Nash equilibrium in a vertically differentiated duopoly with uncovered market, for a large set of symmetric and asymmetric distributions of consumers, including, among others, all logconcave distributions. The proof relies on the ’income share elasticity’ representation of the consumers’ density function, which ensures the analytical tractability of the firms’ optimality conditions at a high level of generality. Some illustrative examples of the solution are offered, in order to assess the impact of distributive shocks on the equilibrium market configuration.

Demand Elasticity and Fiscal Policy

In this paper we study the transmission mechanism of fiscal policy based on possible changes in the elasticity of demand. These are obtained by assuming that firms face a balance of public and private demands, each characterized by different price elasticity. We show that in this set-up there exists a range of the technological conditions under which fiscal policy is expansionary, independently of the pro- or counter- cyclical nature of its impact on the desired mark-up.

A Simple Analysis of Price and Output Determination: A Model with Imperfect Competition

The core of any basic course in macroeconomics is the development of a set of instruments for the determination of the level of output, the aggregate level of price, the rate of unemployment and the rate of inflation. As far as output and price are concerned, most macroeconomic textbooks end up suggesting that the many economic forces which lie behind their determination can be described within a demand-supply scheme. This choice is probably justified both by the desire to use intuitive and familiar instruments, and by the simplicity of the reference framework. The idea is that domestic output is a composite good, the demand for which depends negatively on its price, due to a real-balance effect as well as, in open economies, a terms-of-trade effect. Supply of domestic output may or may not depend on this price, depending on whether changes in the price level affect the agents behaviour in the labour market. The supply curve is vertical if the nominal wage adjusts istantaneously to any change in price; it is however positively sloped if the nominal wage is fixed; and finally, it is horizontal if the nominal wage is fixed and technology entails constant returns to labour (or price is historically given). In any case, as for peas or oranges, the intersection between demand and supply determines the equilibrium values of output and price.