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Entry costs and aggregate dynamics

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  • Gutiérrez, Germán
  • Jones, Callum
  • Philippon, Thomas

Abstract

We use a structural model to study the interaction between barriers-to-entry, investment, and monetary policy. We first show that entry cost shocks have distinct macroeconomic implications: they raise markups but reduce aggregate demand and investment in such a way that inflation barely changes. Entry costs can thus rationalize the coexistence of increasing markups and low inflation. We then estimate the model on U.S. data. We find that entry costs have risen in the U.S. over the past 20 years and have depressed capital and consumption by about 4%. Absent entry cost shocks, the real interest rate would have been between 0.5 to 1 percentage point higher over the lower bound period.

Suggested Citation

  • Gutiérrez, Germán & Jones, Callum & Philippon, Thomas, 2021. "Entry costs and aggregate dynamics," Journal of Monetary Economics, Elsevier, vol. 124(S), pages 77-91.
    • Handle: RePEc:eee:moneco:v:124:y:2021:i:s:p:s77-s91
    DOI: 10.1016/j.jmoneco.2021.09.006
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    More about this item

    Keywords

    Corporate investment; Competition; Tobin’s Q; Zero lower bound;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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