Journal of Monetary Economics 2014 DOI: 10.1016/j.jmoneco.2014.02.006 View full text
Florin O. Bilbiie, Ippei Fujiwara, Fabio Ghironi

Abstract: International audienceDeviations from long-run price stability are optimal in the presence of endogenous entry and product variety in a sticky-price model in which price stability would be optimal otherwise Long-run inflation (deflation) is optimal when the benefit of variety to consumers falls short of (exceeds) the market incentive for creating that variety--the desired markup; Price indexation exacerbates this mechanism. Plausible preference specifications and parameter values justify positive long-run infl…

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