Monetary Policy and Firm Dynamics
Matthew Read ()
Papers from arXiv.org
Do firm dynamics matter for the transmission of monetary policy? Empirically, the startup rate declines following a monetary contraction, while the exit rate increases, both of which reduce aggregate employment. I present a model that combines firm dynamics in the spirit of Hopenhayn (1992) with New-Keynesian frictions and calibrate it to match cross-sectional evidence. The model can qualitatively account for the responses of entry and exit rates to a monetary policy shock. However, the responses of macroeconomic variables closely resemble those in a representative-firm model. I discuss the equilibrium forces underlying this approximate equivalence, and what may overturn this result.
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-ent, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2011.03514
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