Optimal long-run inflation with occasionally binding financial constraints
Texas Tech University
New Keynesian model with occasionally binding collateral constraints on intermediate-good firms hiring labor. Entrepreneurs face hold-up problem requiring collateral to back wage payments. Financial friction arises from constraint that hiring l
intermediate-good firms: linear production in labor, face collateral constraint on hiring; final-good firms: monopolistic competition, Rotemberg quadratic price adjustment costs
Table 3 p.29
Optimal long-run inflation with markup shock only, occasionally binding collateral constraint