where the variable Cj is a real consumption index

We consider a one-country general equilibrium monetary model as in Oliver J. Blanchard and Nobuhiro Kiyotaki (1987). There are N goods in the economy, which are imperfect substitutes, and money. Each good is produced by a producer who acts as a monopolistic competitor facing a downward sloping demand curve and chooses the nominal price and the level of production of her good. Production makes only use of labor and, since labor supply is elastic, production is endogenously determined. Each producer is also a consumer, who derives utility from the consumption of all goods and real money balances but derives disutility from the eort put in production. Producer-consumer (producer for short) j has the following period utility functio