Monetary policy, firm heterogeneity, and product variety
This study provides new insights on the allocative effect of monetary policy. It shows that contractionary monetary policy exerts a non-trivial reallocation effect by cleansing unproductive firms and enhancing aggregate productivity. At the same time, however, reallocation involves a reduction in th...
| Main Authors: | , |
|---|---|
| Format: | Working paper |
| Published: |
University of Oxford
2020
|
| _version_ | 1797103636781727744 |
|---|---|
| author | Zanetti, F Hamano, M |
| author_facet | Zanetti, F Hamano, M |
| author_sort | Zanetti, F |
| collection | OXFORD |
| description | This study provides new insights on the allocative effect of monetary policy. It shows that contractionary monetary policy exerts a non-trivial reallocation effect by cleansing unproductive firms and enhancing aggregate productivity. At the same time, however, reallocation involves a reduction in the number of product variety that is central to consumer preferences and hurts welfare. A contractionary policy prevents the entry of new firms and insulates existing firms from competition, reducing aggregate productivity. Under demand uncertainty, the gain of the optimal monetary policy diminishes in firm heterogeneity and increases in the preference for product variety. We provide empirical evidence on US data, which corroborates the relevance of monetary policy for product variety that results from firm entry and exit, and provides limited support to the cleansing effect of monetary policy. |
| first_indexed | 2024-03-07T06:22:53Z |
| format | Working paper |
| id | oxford-uuid:f3470dcc-3f9e-4193-aef9-bec5640cb317 |
| institution | University of Oxford |
| last_indexed | 2024-03-07T06:22:53Z |
| publishDate | 2020 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:f3470dcc-3f9e-4193-aef9-bec5640cb3172022-03-27T12:10:55ZMonetary policy, firm heterogeneity, and product varietyWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:f3470dcc-3f9e-4193-aef9-bec5640cb317Bulk import via SwordSymplectic ElementsUniversity of Oxford2020Zanetti, FHamano, MThis study provides new insights on the allocative effect of monetary policy. It shows that contractionary monetary policy exerts a non-trivial reallocation effect by cleansing unproductive firms and enhancing aggregate productivity. At the same time, however, reallocation involves a reduction in the number of product variety that is central to consumer preferences and hurts welfare. A contractionary policy prevents the entry of new firms and insulates existing firms from competition, reducing aggregate productivity. Under demand uncertainty, the gain of the optimal monetary policy diminishes in firm heterogeneity and increases in the preference for product variety. We provide empirical evidence on US data, which corroborates the relevance of monetary policy for product variety that results from firm entry and exit, and provides limited support to the cleansing effect of monetary policy. |
| spellingShingle | Zanetti, F Hamano, M Monetary policy, firm heterogeneity, and product variety |
| title | Monetary policy, firm heterogeneity, and product variety |
| title_full | Monetary policy, firm heterogeneity, and product variety |
| title_fullStr | Monetary policy, firm heterogeneity, and product variety |
| title_full_unstemmed | Monetary policy, firm heterogeneity, and product variety |
| title_short | Monetary policy, firm heterogeneity, and product variety |
| title_sort | monetary policy firm heterogeneity and product variety |
| work_keys_str_mv | AT zanettif monetarypolicyfirmheterogeneityandproductvariety AT hamanom monetarypolicyfirmheterogeneityandproductvariety |