MACROECONOMICS OF SUBSISTENCE POINTS

This paper explores the macroeconomic consequences of preferences displaying asubsistence point. It departs from the existing related literature by assuming thatsubsistence points are specific to each variety of goods rather than to the compositeconsumption good. We show that this simple feature makes the price elasticity of demandfor individual goods procyclical. As a result, markups behave countercyclically inequilibrium. This implication is in line with the available empirical evidence.[...]