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Monetary Policy with Endogenous Firm Entry and Sticky Entry Costs

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Author Info
Tommaso Mancini Griffoli () (IUHEI, The Graduate Institute of International Studies, Geneva)
Abstract

This paper builds a monetary model where firm entry is endogenous, thereby exposing a new channel for the transmission of monetary policy. Individuals have a choice between consuming or investing in new firms by financing a sunk entry cost. Monetary policy shocks affect the cost-benefit analysis of creating new firms, and generate persistent as well as hump-shaped responses of consumption, investment, output and new firm entry, as observed in the data. These results lie on an endogenous source of inertia and are obtained despite minimal nominal rigidities, as only entry costs are assumed to be sticky.

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Paper provided by Economics Section, The Graduate Institute of International Studies in its series HEI Working Papers with number 09-2006.

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Length: 42
Date of creation: Apr 2006
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Handle: RePEc:gii:giihei:heiwp09-2006

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Related research
Keywords: Monetary policy; firm entry; sunk entry costs; investment; sticky prices; New Keynesian models.;

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Find related papers by JEL classification:
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation
E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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