This paper shows that firms' price-setting behaviour determines whether a higher level of competition among firms amplifies or dampens short-run inflationary pressures in the new Keynesian model. When strategic complementarity in pricing decisions prevails, the effect of markup shocks is relatively small.

Competition, Markup shocks, Price-setting behaviour
dx.doi.org/10.1016/j.econlet.2004.12.012
Economics Letters
Department of Economics

Khan, H.U. (2005). Price-setting behaviour, competition, and markup shocks in the new Keynesian model. Economics Letters, 87(3), 329–335. doi:10.1016/j.econlet.2004.12.012