- Speaker
- Date
- Thursday 18 Mar 2021, 12:00 - 13:00
- Type
- Seminar
- Location
Online (Zoom)
- Ticket information
To participate, please send an email to ae-secr@ese.eur.nl
We describe a new channel through which monetary policy affects productivity at business cycle frequencies. An unexpected monetary easing initially reduces average labor productivity, which then overshoots its pre-shock level.
Abstract
We describe a new channel through which monetary policy affects productivity at business cycle frequencies. An unexpected monetary easing initially reduces average labor productivity, which then overshoots its pre-shock level. At the same time, the firm entry rate rises in response to the shock and then undershoots. Market concentration amplifies the effect on productivity and dampens that on entry.
To rationalize these empirical findings, we build a New Keynesian model where the pool of heterogeneous producers is endogenous. By reducing borrowing costs, a monetary easing attracts low productivity firms to the market, inducing a reduction in average productivity. The resulting increase in competition cleanses the market of low productivity firms, leading to a productivity overshooting together with an under shooting of the entry rate. Market concentration affects the nature of new entrants and alters the transmission of the shock.
- Related links
- Department of Economics