Kiel Working Papers, Kiel Institute for World Economics
No 1552:
Oligopolistic Competition and Optimal Monetary Policy
Ester Faia
Abstract: The literature has shown that product market frictions and
firms dynamic play a crucial role in reconciling standard DSGE with several
stylized facts. This paper studies optimal monetary policy in a DSGE model
with sticky prices and oligopolistic competition. In this model firms’
monopolistic rents induce both intra-temporal and intertemporal
time-varying wedges which induce inefficient fluctuations of employment and
consumption. The monetary authority faces a trade-off between stabilizing
inflation and reducing inefficient fluctuations, which is resolved by using
consumer price inflation as a state contingent sale subsidy. An analysis of
the welfare gains of alternative rules show that targeting mark-ups and
asset prices might improve upon a strict inflation targeting
Keywords: product market frictions, oligopolistic competition, optimal monetary policy; (follow links to similar papers)
JEL-Codes: E3,; E5; (follow links to similar papers)
28 pages, September 2009
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Downloadable files:
kwp-1552.pdf
Download Statistics
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design Joakim Ekebom