Publication
Open Access

Towards a Theory of Firm Entry and Stabilization Policy

Loading...
Thumbnail Image
License
Full-text via DOI
ISBN
ISSN
1725-6704
Issue Date
Type of Publication
LC Subject Heading
Other Topic(s)
EUI Research Cluster(s)
Initial version
Published version
Succeeding version
Preceding version
Published version part
Earlier different version
Initial format
Citation
EUI ECO; 2005/24
Cite
BERGIN, Paul, CORSETTI, Giancarlo, Towards a Theory of Firm Entry and Stabilization Policy, EUI ECO, 2005/24 - https://hdl.handle.net/1814/3932
Abstract
This paper studies the role of stabilization policy in a model where firm entry responds to shocks and uncertainty. We evaluate stabilization policy in the context of a simple analytically solvable sticky price model, where firms have to prepay a fixed cost of entry. The presence of endogenous entry can alter the dynamic response to shocks, leading to greater persistence in the effects of monetary and real shocks. Entry affects welfare, depending on the love of variety in consumption and investment, as well as its implications for market competitiveness. In this context, monetary policy has an additional role in regulating the optimal number of entrants, as well as the optimal level of production at each firm. We find that the same monetary policy rule optimal for regulating the scale of production in familiar sticky price models without entry, also generates the amount of (endogenous) entry corresponding to a flex-price equilibrium.
Table of Contents
Additional Information
External Links
Version
Research Projects
Sponsorship and Funder Information