Endogenous Entry, International Business Cycles, and Welfare

Stéphane Auray (1) , Aurélien Eyquem (2)

1 EQUIPPE - Economie Quantitative, Intégration, Politiques Publiques et Econométrie
2 GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne

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.

Mots clés: International business cycles; Endogenous entry; Financial markets incompleteness; Sticky prices; Monetary policy; Welfare

Domaines: Economies et finances

Stéphane Auray, Aurélien Eyquem. Endogenous Entry, International Business Cycles, and Welfare. 2011. ⟨halshs-00581165⟩