Optimal stabilization policy with endogenous firm entry
Abstract
Monetary policy has significant but overlooked effects on entry and exit of firms. We study optimal monetary stabilization policy in a DSGE model with microfounded money demand and endogenous firm entry. Due to a congestion externality affecting firm entry, the optimal policy deviates from the Friedman rule in all states even though all prices are fully flexible. In contrast to previous Ramsey model with flexible price, our calibration exercises suggest that the model can generate a high volatility of the nominal interest rate which is a direct consequence of policy actions to control entry.Download Info
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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2009-032.Length:
Date of creation: 2009
Date of revision:
Handle: RePEc:fip:fedlwp:2009-032
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Keywords: Monetary policy ; Econometric models;This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-26 (All new papers)
- NEP-CBA-2009-09-26 (Central Banking)
- NEP-DGE-2009-09-26 (Dynamic General Equilibrium)
- NEP-MAC-2009-09-26 (Macroeconomics)
- NEP-MON-2009-09-26 (Monetary Economics)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Aleksander Berentsen & Christopher J. Waller, 2013.
"Price-level targeting and stabilization policy,"
Review,
Federal Reserve Bank of St. Louis, issue March, pages 145-164.
- Aleksander Berentsen & Christopher Waller, 2011. "Price‐Level Targeting and Stabilization Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 559-580, October.
- Aleksander Berentsen & Christopher J. Waller, 2009. "Price level targeting and stabilization policy," Working Papers 2009-033, Federal Reserve Bank of St. Louis.
- Stephen D. Williamson & Randall Wright, 2010.
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- Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2007.
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NBER Working Papers
13199, National Bureau of Economic Research, Inc.
- Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2008. "Monetary Policy and Business Cycles with Endogenous Entry and Product Variety," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 299-353 National Bureau of Economic Research, Inc.
- Lewis, Vivien, 2008.
"Business cycle evidence on firm entry,"
Discussion Paper Series 1: Economic Studies
2008,08, Deutsche Bundesbank, Research Centre.
- Lewis, Vivien, 2009. "Business Cycle Evidence On Firm Entry," Macroeconomic Dynamics, Cambridge University Press, vol. 13(05), pages 605-624, November.
- V. Lewis, 2008. "Business Cycle Evidence on Firm Entry," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/539, Ghent University, Faculty of Economics and Business Administration.
- Allen Head & Junfeng Qiu, 2011. "Elastic Money, Inflation, and Interest Rate Policy," Working Papers 1152, Queen's University, Department of Economics.
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