Towards a theory of firm entry and stabilization policy

Paul Bergin and Giancarlo Corsetti

No ECO2005/24, Economics Working Papers from European University Institute

Abstract: This paper studies the role of stabilization policy in a model where firm entry responds to shocks and uncertainty. We evaluate stabilization policy in the context of a simple analytically solvable sticky price model, where firms have to prepay a fixed cost of entry. The presence of endogenous entry can alter the dynamic response to shocks, leading to greater persistence in the effects of monetary and real shocks. Entry affects welfare, depending on the love of variety in consumption and investment, as well as its implications for market competitiveness. In this context, monetary policy has an additional role in regulating the optimal number of entrants, as well as the optimal level of production at each firm. We find that the same monetary policy rule optimal for regulating the scale of production in familiar sticky price models without entry, also generates the amount of (endogenous) entry corresponding to a flex-price equilibrium.

Keywords: productivity; monetary policy; market dynamics (search for similar items in EconPapers)
JEL-codes: E22 E52 L16 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://cadmus.iue.it/dspace/bitstream/1814/3932/3/ECO2005-24.pdf main text
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Working Paper: Towards a Theory of Firm Entry and Stabilization Policy (2005)
Working Paper: Towards a Theory of Firm Entry and Stabilization Policy (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2005/24

Access Statistics for this paper

More papers in Economics Working Papers from European University Institute Badia Fiesolana, Via dei Roccettini, 9, 50014 San Domenico di Fiesole (FI) Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Cécile Brière ().