The Effect Of Loose Monetary Policy Under Heterogeneous Enterprise

In the New Keynesian macroeconomic model,monetary policy can play a role in increasing output and restoring equilibrium due to the presence of imperfect market competition and price stickiness,where markets face negative shocks that cannot be cleared in time.The concern of this paper is that the market competition pattern and price stickiness can be changed by expansionary monetary policy,and loose monetary policy can have different consequences.Considering firm heterogeneity,large firms with strong market power have high price markups,long price adjustment cycles,and high price stickiness;small firms with weak market power have low price markups and short price adjustment cycles.Using the local projection method,this paper finds that when loose monetary policy is implemented,large firms are slow to adjust prices while small firms are quick to do so,which changes the market competition pattern and eventually makes the price markup of large firms decrease significantly,and expansionary monetary policy can reduce the price markup difference among firms.In the open New Keynesian model with endogenous price markup,accommodative monetary policy not only raises output by increasing demand,but also improves the market structure and price stickiness on the supply side to increase more output.