Munich Personal RePEc Archive

Firms' entry, monetary policy and the international business cycle

Cavallari, Lilia (2012): Firms' entry, monetary policy and the international business cycle.

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Abstract

This paper provides a theory of the international business cycle grounded on firms' entry and sticky prices. It shows that under simple monetary rules pro-cyclical entry and counter-cyclical markups can generate fluctuations in macroeconomic aggregates and trade variables as large as those observed in the data while at the same time providing positive international comovements. Both firms' entry and sticky prices are essential for reproducing the synchronization of the business cycles found in the data.

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