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.

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Keywords Competition, Markup shocks, Price-setting behaviour
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Journal Economics Letters
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