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Journal Articles Journal of Monetary Economics Year : 2014

Optimal monetary policy with endogenous entry and product variety

Abstract

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.

Dates and versions

halshs-00975152 , version 1 (08-04-2014)

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Florin Bilbiie, Ippei Fujiwara, Fabio Ghironi. Optimal monetary policy with endogenous entry and product variety. Journal of Monetary Economics, 2014, pp.see doi. ⟨10.1016/j.jmoneco.2014.02.006⟩. ⟨halshs-00975152⟩
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