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Endogenous Entry, International Business Cycles, and Welfare

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  • Stéphane Auray

    ()
    (CNRS – THEMA (UMR 8184), EQUIPPE (EA 4018) – Universités Lille Nord de France (ULCO), Université de Sherbrooke (GREDI) and CIRPEE, Canada)

  • Aurélien Eyquem

    ()
    (GATE LSE, Université de Lyon, and Ecole Normale Supérieure de Lyon, France, and GREDI, Université de Sherbrooke, Canada)

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. 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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File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-1105.pdf
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Bibliographic Info

Paper provided by Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke in its series Cahiers de recherche with number 11-05.

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Length: 34 pages
Date of creation: 31 Mar 2011
Date of revision:
Handle: RePEc:shr:wpaper:11-05

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Keywords: International Business Cycles; Endogenous Entry; Financial Markets Incompleteness; Sticky Prices; Monetary Policy; Welfare;

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