Empirical data suggest that new firms tend to grow faster than incumbent firms in terms of their productivity. A sticky-price model with learning-by-doing in new firms fits this data and predicts that for plausible calibrations, the optimal long-run inflation rate is positive and between 0.5%...

When policy depends on popular support, it is unfeasible to obtain allocative efficiency under competitive markets and free entry. We derive that this fundamental impossibility result holds because policy as well as prices respond to factor allocations. In our baseline model, free entry regards...

This paper is the first attempt to investigate the performance of different learning rules in fitting survey data of household and expert inflation expectations in five core European economies (France, Germany, Italy, Netherlands and Spain). Overall it is found that constant gain learning...