Light horror / action movie, about a monster from a movie, that once in a couple years becomes real

Production: 2000s (?), likely USA
It is kind of a horror, but very light. Kind of a bit a comedy (but not at the level of “Dracula: Dead and Loving It” or something)

A medicine student comes to a small town to visit his grandpa. Grandpa is famous there, because when he was a teenager (or collage age) he played in a horror movie that was recorded in that town. He portrayed a “local hero”, that must fight with a monster attacking the town. The movie is the only thing that the town is known for, and once in a couple years they make festival related to the movie.

However turned out that grandpa put himself into troubles. He got arrested, because he was walking in the middle of night with an axe, and some people got scared. The police thinks he is getting some mental problems because of his age. The main character pays the bail, and promised to take care about grandpa.

However grandpa tells him different story. Since the festival became more famous and more people started to come to the town, at each festival, the monster becomes real, and starts to kill people. Local physician, never believes it when he analyze first bodies. Grandpa says, that he killed the monster many times. When this is over, everybody forgets about everything and people who died just disappear as if they never existed. He also says that if monster ever menage to kill everybody in the town, it will be able to leave it (It is never asked how he knows that). Grandpa says that when this things happen, movie rules applies, like: “The car will never start when you need it”, “If you hear barking, the monster is near”. One of rules also says that each time the rules change a bit (“New movie, new rules”), especially about how to kill the monster. Since one time, monster acquired ability of regeneration. Recently the most effective way to kill it is by burning or freezing.

They try to go for the monster, but eventually grandpa gets arrested again, and the main character must take the responsibility of the “local hero”.

Eventually he kills the monster by freezing it. When everything comes back to normal he and his grandpa are the only people that remembers what happened. He says that he will go back to his study of medicine and he will graduates before next festival and will become new “local physician”. Grandpa says “Local hero cannot be a local physician”, and he answers “New movie, new rules”.