Young Firms and Monetary Policy Transmission
IMF Working Papers, March 5, 2021
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- Young Firms and Monetary Policy Transmission
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Bibliographic details
- Authors: Thomas McGregor
- Published: March 5, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513571584.001
Overview
- Author: Thomas McGregor
- Date: March 5, 2021
- Core question: Investigates the role of business dynamism in the transmission of monetary policy by exploiting the variation in firm demographics across U.S. states.
- Main empirical approach: Using local projections to estimate the effects of monetary policy on the labor market and personal income across U.S. states with differing firm-age structures.
Key findings
- 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.
- Results are robust to a battery of robustness tests.
Methodology and empirical evidence
- Empirical strategy: Local projections exploiting variation in firm demographics across U.S. states.
- Outcomes analyzed: Labor market indicators and personal income responses to monetary policy shocks.
- Firm-demography measures highlighted: firm entry rate; employment share of young firms; fraction of young firms.
Theoretical framework
- Model: A heterogeneous-firm model with age-dependent financial frictions.
- Purpose of model: To rationalize the empirical evidence that business dynamism (young firm presence) mutes monetary policy transmission.
Robustness
- Findings reported as robust to a battery of robustness tests (no additional numerical detail provided in source text).
Policy implications and interpretation
- Business dynamism, specifically a higher share of young firms and higher entry rates, alters monetary transmission mechanisms by muting labor-market and personal-income responses to monetary policy.
- Understanding age-dependent financial frictions across firms is important for assessing the effectiveness and distributional impact of monetary policy.
Subjects and keywords
- 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
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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