Analytical solutions to an RBC model with imperfect competition, increasing returns and underemployment

We construct in this paper a "benchmark" model of fluctuations with optimizing households and firms. The economy is a monetary one, with imperfect competition in goods and labor markets, as well as increasing returns to scale and specialization. This economy is subject to technological and monetary shocks. Analytical solutions are derived, which allow to understand the respective roles of imperfect competition and increasing returns in generating underemployment of resources and potential persistence effects.