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Optimal monetary policy with endogenous entry and product variety

Listed author(s):
  • Florin Bilbiie

    ()

    (CEPR - Center for Economic Policy Research - CEPR, CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, PSE - Paris School of Economics)

  • Ippei Fujiwara
  • Fabio Ghironi

    (Department of Economics - Boston College)

Deviations from long-run price stability are optimal in the presence of endogenous entry and product variety in a sticky-price model in which price stability would be optimal otherwise Long-run inflation (deflation) is optimal when the benefit of variety to consumers falls short of (exceeds) the market incentive for creating that variety--the desired markup; Price indexation exacerbates this mechanism. Plausible preference specifications and parameter values justify positive long-run inflation rates. However, short-run price stability (around this non-zero trend) is close to optimal, even in the presence of endogenously time-varying desired markups that distort the intertemporal allocation of resources.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00975152.

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Date of creation: 14 Mar 2014
Publication status: Published in Journal of Monetary Economics, Elsevier, 2014, pp.see doi. <10.1016/j.jmoneco.2014.02.006>
Handle: RePEc:hal:cesptp:halshs-00975152
DOI: 10.1016/j.jmoneco.2014.02.006
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00975152
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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