Monetary policy and business cycles with endogenous entry and product variety:
This paper studies the role of endogenous producer entry and product creation for monetary policy analysis and business cycle dynamics in a general equilibrium model with imperfect price adjustment. Optimal monetary policy stabilizes product prices, but lets the consumer price index vary to accommod...
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| Main Authors: | , , |
|---|---|
| Format: | Book |
| Language: | English |
| Published: |
Cambridge, Mass.
National Bureau of Economic Research
2007
|
| Series: | Working paper series / National Bureau of Economic Research
13199 |
| Online Access: | Volltext |
| Summary: | This paper studies the role of endogenous producer entry and product creation for monetary policy analysis and business cycle dynamics in a general equilibrium model with imperfect price adjustment. Optimal monetary policy stabilizes product prices, but lets the consumer price index vary to accommodate changes in the number of available products. The free entry condition links the price of equity (the value of products) with marginal cost and markups, and hence with inflation dynamics. No-arbitrage between bonds and equity links the expected return on shares, and thus the financing of product creation, with the return on bonds, affected by monetary policy via interest rate setting. This new channel of monetary policy transmission through asset prices restores the Taylor Principle in the presence of capital accumulation (in the form of new production lines) and forward-looking interest rate setting, unlike in models with traditional physical capital. We also study the implications of endogenous variety for the New Keynesian Phillips curve and business cycle dynamics more generally, and we document the effects of technology, deregulation, and monetary policy shocks, as well as the second moment properties of our model, by means of numerical examples. |
| Item Description: | Literaturverz. S. 42 - 46 |
| Physical Description: | 46, [10] S. graph. Darst. 22 cm |
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| 520 | 8 | |a This paper studies the role of endogenous producer entry and product creation for monetary policy analysis and business cycle dynamics in a general equilibrium model with imperfect price adjustment. Optimal monetary policy stabilizes product prices, but lets the consumer price index vary to accommodate changes in the number of available products. The free entry condition links the price of equity (the value of products) with marginal cost and markups, and hence with inflation dynamics. No-arbitrage between bonds and equity links the expected return on shares, and thus the financing of product creation, with the return on bonds, affected by monetary policy via interest rate setting. This new channel of monetary policy transmission through asset prices restores the Taylor Principle in the presence of capital accumulation (in the form of new production lines) and forward-looking interest rate setting, unlike in models with traditional physical capital. We also study the implications of endogenous variety for the New Keynesian Phillips curve and business cycle dynamics more generally, and we document the effects of technology, deregulation, and monetary policy shocks, as well as the second moment properties of our model, by means of numerical examples. | |
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| spelling | Bilbiie, Florin 1976- Verfasser (DE-588)123439922 aut Monetary policy and business cycles with endogenous entry and product variety Florin O. Bilbiie ; Fabio Ghironi ; Marc J. Melitz Cambridge, Mass. National Bureau of Economic Research 2007 46, [10] S. graph. Darst. 22 cm txt rdacontent n rdamedia nc rdacarrier Working paper series / National Bureau of Economic Research 13199 Literaturverz. S. 42 - 46 This paper studies the role of endogenous producer entry and product creation for monetary policy analysis and business cycle dynamics in a general equilibrium model with imperfect price adjustment. Optimal monetary policy stabilizes product prices, but lets the consumer price index vary to accommodate changes in the number of available products. The free entry condition links the price of equity (the value of products) with marginal cost and markups, and hence with inflation dynamics. No-arbitrage between bonds and equity links the expected return on shares, and thus the financing of product creation, with the return on bonds, affected by monetary policy via interest rate setting. This new channel of monetary policy transmission through asset prices restores the Taylor Principle in the presence of capital accumulation (in the form of new production lines) and forward-looking interest rate setting, unlike in models with traditional physical capital. We also study the implications of endogenous variety for the New Keynesian Phillips curve and business cycle dynamics more generally, and we document the effects of technology, deregulation, and monetary policy shocks, as well as the second moment properties of our model, by means of numerical examples. Ghironi, Fabio 1967- Verfasser (DE-588)12933538X aut Melitz, Marc J. Verfasser (DE-588)129335398 aut Erscheint auch als Online-Ausgabe National Bureau of Economic Research <Cambridge, Mass.> NBER working paper series 13199 (DE-604)BV002801238 13199 http://papers.nber.org/papers/w13199.pdf kostenfrei Volltext |
| spellingShingle | Bilbiie, Florin 1976- Ghironi, Fabio 1967- Melitz, Marc J. Monetary policy and business cycles with endogenous entry and product variety |
| title | Monetary policy and business cycles with endogenous entry and product variety |
| title_auth | Monetary policy and business cycles with endogenous entry and product variety |
| title_exact_search | Monetary policy and business cycles with endogenous entry and product variety |
| title_exact_search_txtP | Monetary policy and business cycles with endogenous entry and product variety |
| title_full | Monetary policy and business cycles with endogenous entry and product variety Florin O. Bilbiie ; Fabio Ghironi ; Marc J. Melitz |
| title_fullStr | Monetary policy and business cycles with endogenous entry and product variety Florin O. Bilbiie ; Fabio Ghironi ; Marc J. Melitz |
| title_full_unstemmed | Monetary policy and business cycles with endogenous entry and product variety Florin O. Bilbiie ; Fabio Ghironi ; Marc J. Melitz |
| title_short | Monetary policy and business cycles with endogenous entry and product variety |
| title_sort | monetary policy and business cycles with endogenous entry and product variety |
| url | http://papers.nber.org/papers/w13199.pdf |
| volume_link | (DE-604)BV002801238 |
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