Optimal monetary policy with endogenous entry and product variety
Journal article: 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.
Author(s)
Florin Bilbiie, Ippei Fujiwara, Fabio Ghironi
Journal
- Journal of Monetary Economics
Date of publication
- 2014
Keywords
- Entry
- Optimal inflation rate
- Price stability
- Product variety
- Ramsey-optimal monetary policy
Pages
- see doi
URL of the HAL notice
Version
- 1