Firms' Entry, Monetary Policy and the International Business Cycle
31 Pages Posted: 17 Oct 2012
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: Suggested Citation