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Firms?entry, monetary policy and the international business cycle

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  • Lilia Cavallari

Abstract

This paper studies the role of producer entry for global monetary policy and the propa- gation of the international business cycle in a two-country general equilibrium (DSGE) model with monopoly distortions and imperfect price adjustment. It introduces endogenous entry into the model of Benigno and Benigno (2008) so as to provide a ?rst step towards the joint deter- mination of exchange rates and product varieties under interest rate rules. The paper shows that endogenous product variety has relevant consequences for the dynamics of the exchange rate and the terms of trade, highlighting a novel channel of international cyclical transmission. The paper provides numerical examples of responses to country-speci?c shocks to aggregate productivity, entry costs and monetary policy under plausible interest rate settings with both ?oating and ?xed exchange rates and compare them to their ?exible price counterpart.

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Bibliographic Info

Paper provided by CREI Università degli Studi Roma Tre in its series Working Papers with number 0210.

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Length: 32 pages
Date of creation: 2010
Date of revision: 2010
Handle: RePEc:rcr:wpaper:02_10

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Keywords: product variety; ?rm entry; international business cycle; monetary policy; interest rate rules; exchange rate regimes;

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References

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Citations

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Cited by:
  1. Cavallari, Lilia, 2013. "A note on firm entry, markups and the business cycle," Economic Modelling, Elsevier, vol. 35(C), pages 528-535.
  2. Matteo Cacciatore, 2013. "Trade, Unemployment, and Monetary Policy," 2013 Meeting Papers 724, Society for Economic Dynamics.
  3. Matteo Cacciatore & Giuseppe Fiori & Fabio Ghironi, 2013. "Market Deregulation and Optimal Monetary Policy in a Monetary Union," NBER Working Papers 19025, National Bureau of Economic Research, Inc.
  4. Carla La Croce & Lorenza Rossi, 2014. "Endogenous Firms Dynamics and Banking," DEM Working Papers Series 072, University of Pavia, Department of Economics and Management.
  5. Lilia Cavallari, 2012. "Modelling Entry Costs: Does It Matter For Business Cycle Transmission?," Working Papers 0712, CREI Università degli Studi Roma Tre, revised 2012.
  6. Cavallari, Lilia, 2012. "Markups and Entry in a DSGE Model," MPRA Paper 41816, University Library of Munich, Germany.

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