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New-Keynesian Phillips Curve with Bertrand Competition and Endogenous Entry

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  • Federico Etro

    () (Department of Economics, University of Venice Ca' Foscari)

  • Lorenza Rossi

    () (Department of Economics and Management, University of Pavia)

Abstract

We derive a New Keynesian Phillips Curve under Calvo staggered pricing and price competition. Firms strategic interactions induce price adjusters to change their prices less when there are more firms that do not adjust. This reduces the slope of the Phillips curve and generates an additional source of real rigidity that magnifies the impact of monetary shocks on the economic activity. Endogenous entry amplifies the impact of both monetary and real shocks. We study the design of the optimal Taylor rule in the case of a fixed number of firms and we characterize the optimal monetary policy to restore the social planner allocation and the optimal Ramsey steady state in the case of endogenous entry.

Suggested Citation

  • Federico Etro & Lorenza Rossi, 2014. "New-Keynesian Phillips Curve with Bertrand Competition and Endogenous Entry," DEM Working Papers Series 079, University of Pavia, Department of Economics and Management.
  • Handle: RePEc:pav:demwpp:demwp0079
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    Citations

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    Cited by:

    1. Fabio Ghironi & Sanjay K. Chugh, 2010. "Optimal Fiscal Policy with Endogenous Product Variety," 2010 Meeting Papers 812, Society for Economic Dynamics.
    2. Etro, Federico & Rossi, Lorenza, 2015. "Optimal monetary policy under Calvo pricing with Bertrand competition," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 423-440.
    3. Fabio Ghironi, 2018. "Macro needs micro," Oxford Review of Economic Policy, Oxford University Press, vol. 34(1-2), pages 195-218.
    4. Cavallari, Lilia, 2015. "Entry costs and the dynamics of business formation," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 312-326.
    5. repec:eee:eecrev:v:103:y:2018:i:c:p:18-38 is not listed on IDEAS
    6. repec:eee:resene:v:52:y:2018:i:c:p:186-215 is not listed on IDEAS
    7. Cacciatore, Matteo & Fiori, Giuseppe & Ghironi, Fabio, 2015. "The domestic and international effects of euro area market reforms," Research in Economics, Elsevier, vol. 69(4), pages 555-581.
    8. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2008. "Monopoly Power and Endogenous Product Variety: Distortions and Remedies," NBER Working Papers 14383, National Bureau of Economic Research, Inc.
    9. Annicchiarico, Barbara & Correani, Luca & Di Dio, Fabio, 2018. "Environmental policy and endogenous market structure," Resource and Energy Economics, Elsevier, vol. 52(C), pages 186-215.
    10. Etro, Federico, 2016. "Endogenous market structures in the credit market and Ricardian equivalence," Economics Letters, Elsevier, vol. 140(C), pages 14-18.

    More about this item

    Keywords

    New Keynesian Phillips Curve; Real rigidities; Sticky prices; Optimal monetary policy; Inflation; Endogenous entry;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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