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
Section 6.4 p.34
Robustness: with ZLB constraint, markup shock