Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
New-Keynesian Phillips curve with Bertrand competition and endogenous entry. / Etro, F.; Rossi, L.
In: Journal of Economic Dynamics and Control, Vol. 51, 28.02.2015, p. 318-340.Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - New-Keynesian Phillips curve with Bertrand competition and endogenous entry
AU - Etro, F.
AU - Rossi, L.
PY - 2015/2/28
Y1 - 2015/2/28
N2 - We derive a New Keynesian Phillips curve under Calvo staggered pricing and endogenous market structures with Bertrand competition. Both strategic interactions and endogenous business creation strengthen the nominal rigidities. Price adjusters change their prices less when there are more direct competitors that do not adjust, which reduces the slope of the Phillips curve. Current and future firms entering in the markets decrease current inflation because they reduce markups and the welfare-based price index. Endogenous entry amplifies the impact of both monetary and supply shocks. We also characterize the optimal social planner allocation, that can be replicated with a labor subsidy and a dividend tax (both decreasing in the number of firms) and zero producer price inflation. The optimal Ramsey allocation implies zero inflation tax in steady state.
AB - We derive a New Keynesian Phillips curve under Calvo staggered pricing and endogenous market structures with Bertrand competition. Both strategic interactions and endogenous business creation strengthen the nominal rigidities. Price adjusters change their prices less when there are more direct competitors that do not adjust, which reduces the slope of the Phillips curve. Current and future firms entering in the markets decrease current inflation because they reduce markups and the welfare-based price index. Endogenous entry amplifies the impact of both monetary and supply shocks. We also characterize the optimal social planner allocation, that can be replicated with a labor subsidy and a dividend tax (both decreasing in the number of firms) and zero producer price inflation. The optimal Ramsey allocation implies zero inflation tax in steady state.
KW - Bertrand competition
KW - Endogenous entry
KW - Inflation
KW - New Keynesian Phillips curve
KW - Optimal monetary policy
KW - Staggered prices
U2 - 10.1016/j.jedc.2014.10.009
DO - 10.1016/j.jedc.2014.10.009
M3 - Journal article
VL - 51
SP - 318
EP - 340
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
SN - 0165-1889
ER -