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The Overshooting of Firms Destruction, Banks and Productivity Shocks

Lorenza Rossi ()

No 147, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: Using U.S.quarterly data we show that in response to a positive productivity shock:i) firms creation increases ii) firms destruction reduces at impact,it then overshoots its long run level,peaking three years later above its steady state. iii) banks markup reduces.To address these three facts,we provide an NK-DSGE model where firms dynamics is endogenous, the banking sector is monopolistic competitive and defaulting firms do not repay loans to banks. We show that the interaction between firms and banks is key to replicate the empirical evidence. Contrary to the conventional wisdom,in the baseline model thee efects of the shock are dampened with respect to a model without banks.

Keywords: firms creation; firms destruction; monopolistic banks; countercyclical banks; markup; productivity shocks; overshooting of firms destruction; BVAR. (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-eff and nep-mac
Date: 2018-01
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