Pavlov, O.Weder, M.2012-08-282012-08-282012Journal of Economic Dynamics and Control, 2012; 36(4):629-6410165-18891879-1743http://hdl.handle.net/2440/72830Countercyclical markups are a key transmission mechanism in many endogenous business cycle models. Yet, recent findings suggest that aggregate markups in the US are procyclical. The current model addresses this issue. It extends Galí's (1994) composition of aggregate demand model by endogenous entry and exit of firms and by product variety effects. Endogenous business cycles emerge with procyclical markups that are within empirically plausible ranges. © 2011 Elsevier B.V..enCopyright © 2011 Elsevier B.V. All rights reserved.Sunspot equilibriaIndeterminacyMarkupsVariety effectsBusiness cyclesJournal article002011745510.1016/j.jedc.2011.12.0030003013153000102-s2.0-8485675627025377