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An Open-Economy Model with Money, Endogenous Search, and Heterogeneous Firms

Lucas Herrenbrueck

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: This paper is the first to describe a monetary general equilibrium model that features; (i) search frictions in the goods market, which create market power; (ii) endogenously chosen search effort by consumers, which mitigates this market power; (iii) heterogeneous firms and free entry; and (iv) an open economy, i.e. an arbitrary number of countries that trade goods and, potentially, assets. The model is flexible and well suited to studying questions in international macroeconomics, including the effects of monetary policy on production, firm entry, markups, trade, and welfare, at home or abroad. As part of this effort, I characterize a general class of matching processes which provide a novel approach to modeling firm sales: the number of customers per firm follows a bounded Pareto distribution with shape parameter less than or equal to one.

Keywords: Monetary policy; optimal inflation; search frictions; search effort; price dispersion; open economy (search for similar items in EconPapers)
JEL-codes: D43 E40 F12 (search for similar items in EconPapers)
Pages: 38
Date: 2015-07-01
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-opm
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