Endogenous Entry, International Business Cycles, and Welfare

GATE Working Paper No. 1114

35 Pages Posted: 2 Apr 2011

Date Written: January 1, 2011

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.

JEL Classification: E51, E58, F36, F41

Suggested Citation

Auray, Stéphane and Eyquem, Aurélien, Endogenous Entry, International Business Cycles, and Welfare (January 1, 2011). GATE Working Paper No. 1114, Available at SSRN: https://ssrn.com/abstract=1800748 or http://dx.doi.org/10.2139/ssrn.1800748

Stéphane Auray (Contact Author)

CREST-Ensai ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Aurélien Eyquem

Université de Rennes 1, CREM ( email )

7 Pl. Hoche
35065 Rennes Cedex

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