Monetary transmission mechanism with firm turnover

Monetary Policy and Firm Dynamics

“…7 These findings are broadly consistent with those in Uusküla (2016), who identifies the shock using a partial causal ordering with different variables in the VAR. (exit) in the Business Dynamics Statistics (BDS).…”

“…My empirical results also contribute to a growing body of evidence linking monetary policy to changes in firms' entry and exit behaviour. Bergin and Corsetti (2008), Lewis and Poilly (2012) and Uusküla (2016) document that different measures of firm entry and exit respond to monetary policy shocks using SVARs in which the monetary policy shock is identified by assuming that variables such as output and prices do not respond contemporaneously to the shock. In contrast, I estimate the effects of a monetary policy shock on firm entry and exit using high-frequency monetary policy surprises in a proxy SVAR, as in Gertler and Karadi (2015).…”

Firm Entry and Financial Shocks

“…Our result is also distinct from the few papers that do consider alternative means of entry financing, such as Stebunovs (), Karasoy (), Notz (), Casares and Poutineau (), Cacciatore et al . () and Uusküla (), in that we model firms with a choice between alternative means of financing, and the endogenous shift in this choice implies dynamics in key macro and financial variables that are more consistent with data…”

“… In these papers, entry cost is financed externally through a single source of bank lending, and households borrow loans to finance both consumption and investment. However, none of these papers discusses the effects of financial shocks except Karasoy (), Notz (), and Uusküla (). In particular, the first three papers yield the counterfactual finding of a rise in aggregate consumption with the fall in firm entry.…”

“…Our model is also distinct from the few papers that do model entry cost financing in the form of debt or bank lending, such as Stebunovs (), Karasoy (), Macnamara (), Notz (), Casares and Poutineau (), Cacciatore et al . () and Uusküla (), in that we model the endogenous choice that firms have between debt and equity financing rather than a fixed type of financing. It is the endogenous shift in this financing choice in response to a financial shock that generates our key results.…”