TY  - JOUR
AU  - Aizenman,Joshua
TI  - Monopolistic Competition, Relative Prices and Output Adjustment in the  Open Economy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1787
PY  - 1989
Y2  - August 1989
UR  - http://www.nber.org/papers/w1787
L1  - http://www.nber.org/papers/w1787.pdf
N1  - Author contact info:
Joshua Aizenman
Economics and SIR
USC
University Park
Los Angeles, CA 90089-0043
Tel: 213-740-4066
E-Mail: aizenman@usc.edu
AB  - The purpose of this paper is to explain price and output dynamics in an open economy characterized by a monopolistic competitive market structure in which pricing decisions incur costs. That lead producers to pre-set the price path for several periods. The paper derives an optimal pricing rule, including the optimal pre-setting horizon. It does so for a rational expectation equilibrium, characterized by staggered, unsynchronized price setting, for which the degree of staggering is endogenously determined. The discussion focuses on the critical role of the degree of domestic-foreign goods substitutability in explaining price and output effects of monetary and real shocks.
ER  -