Empirical data show that firms tend to improve their ranking in the productivity distribution over time. A stickyprice … model with firm-level productivity growth fits this data and predicts that the optimal long-run inflation rate is positive … with firm-level productivity growth, and optimal inflation stabilization policies are standard. In a two-sector extension …

Empirical data indicate that firms tend to have below-average productivity upon entry and that they tend to experience … post-entry productivity growth. I present a New Keynesian model with growth in firm-specific productivity and firm turnover … growth in firm-specific productivity. When linearized at positive optimal inflation, the model is observationally equivalent …