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Limited Participation or Sticky Prices? New Evidence from Firm Entry and Failures

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  • Lenno UUSKÜLA

Abstract

Traditional models of monetary transmission such as sticky price and limited participation abstract from firm creation and destruction. Only a few papers look at the empirical effects of the monetary shock on the firm turnover measures. But what can we learn about monetary transmission by including measures for firm turnover into the theoretical and empirical models? Based on a large scale vector autoregressive (VAR) model for the U.S. economy I show that a contractionary monetary policy shock increases the number of business bankruptcy filings and failures, and decreases the creation of firms and net entry. According to the limited participation model, a contractionary monetary shock leads to a drop in the number of firms. On the contrary the same shock in the sticky price model increases the number of firms. Therefore the empirical findings support more the limited participation type of the monetary transmission
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  • Lenno UUSKÜLA, "undated". "Limited Participation or Sticky Prices? New Evidence from Firm Entry and Failures," EcoMod2008 23800147, EcoMod.
  • Handle: RePEc:ekd:000238:23800147
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    References listed on IDEAS

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    Cited by:

    1. Céline Poilly & Vivien Lewis, 2011. "Firm Entry, Inflation and the Monetary Transmission Mechanism," 2011 Meeting Papers 113, Society for Economic Dynamics.
    2. Lewis, Vivien, 2009. "Business Cycle Evidence On Firm Entry," Macroeconomic Dynamics, Cambridge University Press, pages 605-624.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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