Firm entry, markups and the monetary transmission mechanism

► We estimate two DSGE models with endogenous firm/product entry by impulse response matching. ► Through the competition effect, entry lowers desired markups and dampens inflation. ► The first model features translog preferences and a demand-driven competition effect. ► The second model features oligopolistic competition and a supply-driven competition effect. ► We find a significant competition effect in the first model, but not in the second.