Monopolistic competition, relative prices, and output adjustment in the open economy
AbstractThe purpose of this paper is to explain price and output dynamics in an open economy characterized by a monopolistic competitive market structure in which pricing decisions incur costs. That lead producers to pre-set the price path for several periods. The paper derives an optimal pricing rule, including the optimal pre-setting horizon. It does so for a rational expectation equilibrium, characterized by staggered, unsynchronized price setting, for which the degree of staggering is endogenously determined. The discussion focuses on the critical role of the degree of domestic-foreign goods substitutability in explaining price and output effects of monetary and real shocks.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Money and Finance.
Volume (Year): 8 (1989)
Issue (Month): 1 (March)
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Web page: http://www.elsevier.com/locate/inca/30443
Other versions of this item:
- Joshua Aizenman, 1989. "Monopolistic Competition, Relative Prices and Output Adjustment in the Open Economy," NBER Working Papers 1787, National Bureau of Economic Research, Inc.
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