Young Firms and Monetary Policy Transmission

Author: Marco Casiraghi, Thomas McGregor, and Dino Palazzo

Volume/Issue: Volume 2021 Issue 063

Publication date: March 2021

ISBN: 9781513571584

$18.00

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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Labor , Economics- Macroeconomics , Money and Monetary Policy , Economics / General , International - Economics , Demography , firm demographics , business dynamism , monetary policy , local projections , U , S , states , , U , S , states , monetary policy shock , entry rate , population demographics , policy function , startup firm , exit rate , firm productivity , growth rate , Employment , Wages , Personal income , Credit ratings , Global

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Summary

We investigate the role of business dynamism in the transmission of monetary policy by exploitingthe variation in firm demographics across U.S. states. Using local projections, we find that a larger fraction of young firms significantly mutes the effects of monetary policy on the labor market and personal income over the medium term. The firm entry rate and the employment share of young firms are key factors underpinning these results, which are robust to a battery of robustness tests. We develop a heterogeneous-firm model with age-dependent financial frictions that rationalizes the empirical evidence.