Optimal monetary policy with endogenous entry and product variety

Florin Bilbiie, Ippei Fujiwara and Fabio Ghironi

Journal of Monetary Economics, 2014, vol. 64, issue C, 1-20

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.

Keywords: Entry; Optimal inflation rate; Price stability; Product variety; Ramsey-optimal monetary policy (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (119)

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Related works:
Working Paper: Optimal monetary policy with endogenous entry and product variety (2014)
Working Paper: Optimal monetary policy with endogenous entry and product variety (2014)
Working Paper: Optimal monetary policy with endogenous entry and product variety (2014)
Working Paper: Optimal Monetary Policy with Endogenous Entry and Product Variety (2011)
Working Paper: Optimal Monetary Policy with Endogenous Entry and Product Variety (2011)
Working Paper: Optimal Monetary Policy with Endogenous Entry and Product Variety (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:64:y:2014:i:c:p:1-20

DOI: 10.1016/j.jmoneco.2014.02.006

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