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Duopolistic Competition and Monetary Policy

Kozo Ueda

No e167, Working Papers from Tokyo Center for Economic Research

Abstract: This study constructs a tractable duopoly model with price stickiness to consider the strategic pricing of duopolistic firms and its implications for monetary policy. Dynamic strategic complementarity, in which an increase in a firm's price increases the optimal price set by the rival firm in the following periods, increases steady-state price and the real effect of monetary policy. However, when temporary sales arise as a mixed strategy, the real effect of monetary policy decreases considerably.

Pages: 34 pages
Date: 2022-02
New Economics Papers: this item is included in nep-cwa, nep-mac and nep-mon
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