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Endogenous Entry, International Business Cycles, and Welfare

Author

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  • Stéphane Auray

    (CNRS & THEMA (UMR 8184), EQUIPPE (EA 4018) & Universités Lille Nord de France (ULCO), Université de Sherbrooke (GREDI) and CIRPEE, Canada)

  • Aurélien Eyquem

    (GATE LSE, Université de Lyon, and Ecole Normale Supérieure de Lyon, France, and GREDI, Université de Sherbrooke, Canada)

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. 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.

Suggested Citation

  • Stéphane Auray & Aurélien Eyquem, 2011. "Endogenous Entry, International Business Cycles, and Welfare," Cahiers de recherche 11-05, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    • Handle: RePEc:shr:wpaper:11-05
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    File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-1105.pdf
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    References listed on IDEAS

    as
    1. Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, vol. 61(1), pages 163-185, October.
    2. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Fabio Ghironi & Daisoon Kim & Galip Kemal Ozhan, 2024. "International Economic Sanctions and Third-Country Effects," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(2), pages 611-652, June.

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    More about this item

    Keywords

    International Business Cycles; Endogenous Entry; Financial Markets Incompleteness; Sticky Prices; Monetary Policy; Welfare;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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