Monetary Policy and Business Cycles with Endogenous Entry and Product Variety ∗

  title={Monetary Policy and Business Cycles with Endogenous Entry and Product Variety ∗},
  author={Florin O. Bilbiie and Fabio Ghironi and Marc J. Melitz},
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… CONTINUE READING
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