DP636 Imperfect Competition and Macroeconomics: A Survey

• Neil Rankin Huw David Dixon
28 May 1992

This survey outlines the general lessons of the recent literature on imperfectly competitive macroeconomies for the theory of monetary and fiscal policy. A general framework is presented which encompasses most of the existing literature. Although money is of itself neutral in these models, the presence of menu costs, expectations which are not unit elastic, or sectoral nominal rigidities can result in a welfare-improving role for monetary policy. Imperfect competition also enhances the scope for the beneficial influence of fiscal policy. We explore the possibilities for multiple Pareto-ranked equilibria and the role of increasing returns to scale.