Firms' Entry, Monetary Policy and the International Business Cycle

31 Pages Posted: 17 Oct 2012

See all articles by Lilia Cavallari

Lilia Cavallari

Sapienza University of Rome - Department of Public Economics; University of Rome III - DIPES

Date Written: October 16, 2012

Abstract

This paper provides a theory of the international business cycle grounded on firms' entry and sticky prices. It shows that under simple monetary rules pro-cyclical entry and counter-cyclical markups can generate fluctuations in macroeconomic aggregates and trade variables as large as those observed in the data while at the same time providing positive international comovements. Both firms' entry and sticky prices are essential for reproducing the synchronization of the business cycle found in the data.

Keywords: firm entry, international business cycle, international comovements, comovements puzzle, markups

JEL Classification: E31, E32, E52

Suggested Citation

Cavallari, Lilia and Cavallari, Lilia, Firms' Entry, Monetary Policy and the International Business Cycle (October 16, 2012). Available at SSRN: https://ssrn.com/abstract=2162425 or http://dx.doi.org/10.2139/ssrn.2162425

Lilia Cavallari (Contact Author)

University of Rome III - DIPES ( email )

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Sapienza University of Rome - Department of Public Economics ( email )

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