Business Cycles in a Dynamic General Equilibrium Model with Monopolistic and Perfect Competition

Year 2020, Volume: 4 Issue: 1, 11 - 33, 31.08.2020

Wei-bin Zhang

https://doi.org/10.33399/biibfad.644677

Abstract

The purpose of this study is to explain business
cycles by developing a neoclassical growth model with perfect and monopolistic
competition. The study generalizes the model by Zhang (2019) by making all the
constant coefficients to be time dependent. The model determines income and
wealth distribution on the basis of Walrasian general equilibrium theory,
neoclassical growth theory, and Dixit-Stiglitz monopolistic competitive theory.
The paper makes a unique contribution to the literature of economic growth with
perfect and monopolistic competition by showing existence of business cycles
due to exogenous shocks in the model with the economic mechanisms in the three
main models of economic theory. The study shows how different shocks cause business
cycles as argued by real business theory in macroeconomics.

Keywords

business cycle, solow model, Dixit-Stiglitz model, monopolistic competition

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