IMF Working Papers

Young Firms and Monetary Policy Transmission

By Marco Casiraghi, Thomas McGregor, Dino Palazzo

March 5, 2021

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Marco Casiraghi, Thomas McGregor, and Dino Palazzo. Young Firms and Monetary Policy Transmission, (USA: International Monetary Fund, 2021) accessed December 26, 2024

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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.

Subject: Credit ratings, Economic sectors, Employment, Financial crises, Labor, Money, National accounts, Personal income, Population and demographics, Wages

Keywords: Business dynamism, Credit ratings, Employment, Entry rate, Exit rate, Firm demographics, Firm productivity, Global, Growth rate, Local projections, Monetary policy, Monetary policy shock, Personal income, Policy function, Population demographics, Startup firm, U.S. states, U.S. states., Wages

Publication Details

  • Pages:

    64

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

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  • Series:

    Working Paper No. 2021/063

  • Stock No:

    WPIEA2021063

  • ISBN:

    9781513571584

  • ISSN:

    1018-5941