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Endogenous Firms' ?Exit, Inefficient Banks and Business Cycle Dynamics

Lorenza Rossi ()

No 15117, Working Papers LuissLab from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: I consider a NK-DSGE model with endogenous ?firms'? exit and entry together with a monopolistic competitive banking sector, where defaulting ?firms do not repay loans to banks. I show that the exit margin is an important shock transmission channel. It implies: i) an endogenous countercyclical number of fi?rms destruction; ii) an endogenous countercyclical bank markup and spread. The interaction between i) and ii) generates a stronger propagation mechanism with respect to a model with efficient banks. Compared to a model with exogenous exit the model generates a correlation between output and ?firms' ?entry closer to the data.

Keywords: fi?rms ?endogenous exit; ?firms dynamics; monopolistic banking; inefficient fi?nancial markets; countercyclical bank markup; interest rate spread.. (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 E58 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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