Monetary Policy and Firm Dynamics
General Economics
2020-11-09 v1 Economics
Abstract
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.
Cite
@article{arxiv.2011.03514,
title = {Monetary Policy and Firm Dynamics},
author = {Matthew Read},
journal= {arXiv preprint arXiv:2011.03514},
year = {2020}
}