We study the implications for optimal monetary policy of introducing habit formation in consumption into a general equilibrium model with sticky prices. Habit formation affects the model's endogenous dynamics through its effects on both aggregate demand and households' supply of output. We show...

Determinacy of equilibrium under the original, the backward-looking, the forward-looking and the hybrid Phillips curves is examined. If the monetary authority keeps the nominal money stock to be constant, the equilibrium path is always determinate under the original Phillips curve and the...

As GDP is highly correlated with both entering and exiting firms, we develop a totally microfounded DSGE model with endogenous firms entry as well as exit decisions. We show that the simplifying assumption of a constant firms' death rate made by the recent literature on DSGE modelling can lead...

In this paper we derive a Phillips curve with a role for higher order expectations of marginal cost and future inflation. We introduce a small idiosyncratic component in firms' marginal costs and let the economywide average marginal cost be unobservable to the individual firm. The model can then...