It has been argued that rule of thumb consumers substantially alter the determinacy properties of interest rate rules and the dynamics of an otherwise standard newkeynesian model. In this paper we show that nominal wage stickiness helps restoring standard results. Key …ndings are that when wages are sticky i) the Taylor Principle returns the necessary condition for equilibrium determinacy; ii) consumption rises in response to an innovation in government spending if monetary policy is characterized by interest rate smoothing and by a moderately anti-in ‡ationary stance. Our results help explaining the reduction in the expansionary e¤ects of …scal shocks observed in the U.S. after 1980.JEL classi…cation: E52, E62.

We characterize endogenous market structures under Bertrand and Cournot competition in a DSGE model. Short run markups vary countercyclically because of the impact of entry on competition. Long run markups are decreasing in the discount factor and in productivity, and increasing in the exit rate and in the entry costs. Dynamic ine¢ ciency can emerge due to excessive entry under Cournot competition. Positive temporary shocks attract entry, which strengthens competition so as to temporary reduce the markups and increase real wages: this competition e¤ect creates an intertemporal substitution e¤ect which boosts consumption and employment. Endogenous market structures improve the ability of a ‡exible prices model in matching impulse response functions and second moments for US data.JEL classi…cation: L11, E32.

This paper reviews recent research on the relationship between central bank policies and inequality. A new paradigm which integrates sticky‐prices, incomplete markets, and heterogeneity among households is emerging, which allows for the joint study of how inequality shapes macroeconomic aggregates and how macroeconomic shocks and policies affect inequality. The new paradigm features multiple distributional channels of monetary policy. Most empirical studies, however, analyze each potential channel of redistribution in isolation. Our review suggests that empirical research on the effects of conventional monetary policy on income and wealth inequality yields mixed findings, although there seems to be a consensus that higher inflation, at least above some threshold, increases inequality. In contrast to common wisdom, conclusions concerning the impact of unconventional monetary policies on inequality are also not clear cut. To better understand policy effects on inequality, future research should focus on the estimation of General Equilibrium models with heterogeneous agents.

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We study the design of monetary policy in an economy characterized by staggered wage and price contracts together with limited asset market participation (LAMP). Contrary to previous results, we find that once nominal wage stickiness, an incontrovertible empirical fact, is considered: i) the Taylor Principle is restored as a necessary condition for equilibrium determinacy for any empirically plausible degree of LAMP; ii) the effect of LAMP for the design of optimal monetary policy are minor; iii) optimal interest rate rules becomes active no matter the degree of asset market participation. For this reasons we argue that LAMP does not matter much for monetary policy. JEL Classification Numbers: E50, E52.

We introduce strategic interactions with quantity competition à la Cournot and endogenous entry in an RBC model with homogenous goods. In the long run, the steady state mark up is decreasing in the capital share, in the discount factor and in the level of technology, while it is increasing in the rate of bankruptcy and in the entry cost. In the short run, a competition e¤ect ampli…es the propagation of the shocks and generates procyclical pro…ts and countercyclical mark ups. We extend the model to di¤erent forms of competition (as imperfect collusion and Stackelberg competition). The analysis of technology and preference shocks and of the second moments suggests that the model outperforms the RBC in terms of variability of output, labor and, of course, pro…ts and mark ups.JEL classi…cation: L11, E32.

This article provides optimal labour and dividend income taxation in a general equilibrium model with oligopolistic competition and endogenous firms' entry. In the long run, the optimal dividend income tax corrects for inefficient entry. The dividend income tax depends on the form of competition and the nature of the sunk entry costs. In particular, it is higher in market structures characterised by competition in quantities rather than those characterised by price competition. Oligopolistic competition leads to an endogenous countercyclical price markup. As a result, offsetting the distortions over the business cycle requires deviations from full tax smoothing.