Optimal monetary policy and firm entry
Ghent University and IMFS, Goethe University Frankfurt
New Keynesian model with endogenous firm entry, cash-in-advance constraint, preset wages, monopolistic competition in goods and labor markets, and labor requirement for firm startups
intermediate firms: monopolistic competition with Dixit-Stiglitz aggregation; final goods firm: perfect competition
Section 4.3, Proposition 2
Friedman Rule optimal under both flexible and sticky wages; zero net nominal interest rate implies deflation at rate of time preference, but paper focuses on R=1 as optimal policy
Proposition 2 states Friedman Rule (R=1) is optimal for all dates and states; this is the paper's main monetary policy result