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Endogenous Entry, International Business Cycles, and Welfare

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  • Stéphane Auray

    (EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université Lille I - Sciences et technologies)

  • Aurélien Eyquem

    (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I)

Abstract

This paper examines if taking into account changes in the number of producers, or equivalently changes in the product variety space over the business cycle, helps to understand and replicate international business cycle facts. To this end, we develop a two-country model in which the economy is driven by real and monetary policy shocks. If it is characterized by an endogenous number of firms and varieties, sticky prices and financial markets incompleteness. We show that these features are crucial to reproduce international business cycle statistics. We also evaluate the welfare implications of various monetary policies and highlight the importance for monetary policymakers to respond moderately to output fluctuations.

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Paper provided by HAL in its series Post-Print with number halshs-00581165.

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Date of creation: 2011
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Handle: RePEc:hal:journl:halshs-00581165

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Related research

Keywords: International business cycles; Endogenous entry; Financial markets incompleteness; Sticky prices; Monetary policy; Welfare;

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