Sticky Goods Prices, Flexible Asset Prices, Monopolistic Competition, and Monetary Policy

Abstract

A monetary general equilibrium asset-pricing model with sticky goods prices is developed. Goods prices are set by monopolistically competitive firms that maximize stock market value. Equilibria with underutilization of resources, excess capacity, in some states result, in contrast to previous monetary asset-pricing models. The degree of competition affects capacity utilization. Monetary policy can affect output and resource utilization, in addition to real asset prices, depending upon the amount of information available to the monetary authority.