Endogenous Entry, International Business Cycles, and Welfare

Stéphane Auray and Aurélien Eyquem

No 1114, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: This paper examines if taking into account changes in the number of producers, or equivalently changes in the product variety space over the business cycle, helps to understand and replicate international business cycle facts. To this end, we develop a two-country model in which the economy is driven by real and monetary policy shocks. If it is characterized by an endogenous number of firms and varieties, sticky prices and financial markets incompleteness. We show that these features are crucial to reproduce international business cycle statistics. We also evaluate the welfare implications of various monetary policies and highlight the importance for monetary policymakers to respond moderately to output fluctuations.

Keywords: International business cycles; Endogenous entry; Financial markets incompleteness; Sticky prices; Monetary policy; Welfare (search for similar items in EconPapers)
JEL-codes: C92 D62 D63 D64 D74 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-bec, nep-cba and nep-mac
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ftp://ftp.gate.cnrs.fr/RePEc/2011/1114.pdf (application/pdf)

Related works:
Working Paper: Endogenous Entry, International Business Cycles, and Welfare (2011)
Working Paper: Endogenous Entry, International Business Cycles, and Welfare (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:1114

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