Monetary Policy Uncertainty and Firm Dynamics

Stefano Fasani, Haroon Mumtaz () and Lorenza Rossi
Additional contact information
Haroon Mumtaz: Queen Mary University

No 190, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: This paper uses a FAVAR model with external instruments to show that policy uncertainty shocks are recessionary and are associated with an increase in the exit of firms and a decrease in entry and in the stock price with total factor productivity rising in the medium run. To explain this result, we build a medium scale DSGE model featuring firm heterogeneity and endogenous firm entry and exit. These features are crucial in matching the empirical responses. Versions of the model with constant firms or constant firms' exit are unable to re-produce the FAVAR response of firms' entry and exit and suggest a much smaller effect of this shock on real activity.

Keywords: Monetary policy uncertainty shocks; FAVAR; DSGE. (search for similar items in EconPapers)
JEL-codes: C5 E1 E5 E6 (search for similar items in EconPapers)
Pages: 44
Date: 2020-05
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ent, nep-mac, nep-mon, nep-ore and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://dem-web.unipv.it/web/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0190.pdf (application/pdf)

Related works:
Working Paper: Monetary Policy Uncertainty and Firm Dynamics (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:pav:demwpp:demwp0190

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