Young Firms and Monetary Policy Transmission

Thomas McGregor
Authors registered in the RePEc Author Service: Berardino Palazzo and Marco Casiraghi

No 2021/063, IMF Working Papers from International Monetary Fund

Abstract: We investigate the role of business dynamism in the transmission of monetary policy by exploitingthe variation in firm demographics across U.S. states. Using local projections, we find that a larger fraction of young firms significantly mutes the effects of monetary policy on the labor market and personal income over the medium term. The firm entry rate and the employment share of young firms are key factors underpinning these results, which are robust to a battery of robustness tests. We develop a heterogeneous-firm model with age-dependent financial frictions that rationalizes the empirical evidence.

Keywords: firm demographics; business dynamism; monetary policy; local projections; U.S. states.; U.S. states; monetary policy shock; entry rate; population demographics; policy function; startup firm; exit rate; firm productivity; growth rate; Employment; Wages; Personal income; Credit ratings; Global (search for similar items in EconPapers)
Pages: 64
Date: 2021-03-05
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-ent, nep-fdg, nep-mac, nep-mon and nep-sbm
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