EconPapers    
Economics at your fingertips  
 

Monetary Policy, Firm Heterogeneity, and Product Variety

Masashige Hamano () and Francesco Zanetti ()

No 2005, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: This study provides new insights on the allocative effect of monetary policy. It shows that contractionary monetary policy exerts a non-trivial reallocation effect by cleansing unproductive firms and enhancing aggregate productivity. At the same time, however, reallocation involves a reduction in the number of product variety that is central to consumer preferences and hurts welfare. A contractionary policy prevents the entry of new firms and insulates existing firms from competition, reducing aggregate productivity. Under demand uncertainty, the gain of the optimal monetary policy diminishes in firm heterogeneity and increases in the preference for product variety. We provide empirical evidence on US data, which corroborates the relevance of monetary policy for product variety that results from firm entry and exit, and provides limited support to the cleansing effect of monetary policy.

Keywords: Monetary policy; firm heterogeneity; product variety; reallocation (search for similar items in EconPapers)
JEL-codes: E32 E52 L51 O47 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2020-05
New Economics Papers: this item is included in nep-bec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.waseda.jp/fpse/winpec/assets/uploads/2020/05/E2005_version-1.pdf First version, (application/pdf)

Related works:
Working Paper: Monetary policy, firm heterogeneity, and product variety (2021) Downloads
Working Paper: Monetary Policy, Firm Heterogeneity, and Product Variety (2020) Downloads
Working Paper: Monetary Policy, Firm Heterogeneity, and Product Variety (2020) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wap:wpaper:2005

Access Statistics for this paper

More papers in Working Papers from Waseda University, Faculty of Political Science and Economics Contact information at EDIRC.
Bibliographic data for series maintained by Haruko Noguchi ().

 
Page updated 2021-10-12
Handle: RePEc:wap:wpaper:2005