Entry costs and aggregate dynamics

Germán Gutiérrez, Callum Jones and Thomas Philippon

Journal of Monetary Economics, 2021, vol. 124, issue S, S77-S91

Abstract: We use a structural model to study the interaction between barriers-to-entry, investment, and monetary policy. We first show that entry cost shocks have distinct macroeconomic implications: they raise markups but reduce aggregate demand and investment in such a way that inflation barely changes. Entry costs can thus rationalize the coexistence of increasing markups and low inflation. We then estimate the model on U.S. data. We find that entry costs have risen in the U.S. over the past 20 years and have depressed capital and consumption by about 4%. Absent entry cost shocks, the real interest rate would have been between 0.5 to 1 percentage point higher over the lower bound period.

Keywords: Corporate investment; Competition; Tobin’s Q; Zero lower bound (search for similar items in EconPapers)
JEL-codes: E2 E4 E5 L4 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:124:y:2021:i:s:p:s77-s91

DOI: 10.1016/j.jmoneco.2021.09.006

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