Journal of Monetary Economics volume 59, issue 7, P670-685 2012 DOI: 10.1016/j.jmoneco.2012.10.003 View full text
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Vivien Lewis, Céline Poilly

Abstract: a b s t r a c tTwo business cycle models with endogenous firm and product entry are estimated by matching impulse responses to a monetary policy shock. The 'competition effect' implies that entry lowers desired markups and dampens inflation. Under translog preferences, where the substitutability between goods depends on their number, we find evidence of such an effect. That model generates more countercyclical markups than Dixit and Stiglitz (1977) monopolistic competition model, where price stickiness is the…

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