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The Overshooting of Firms Destruction, Banks and Productivity Shocks

Author

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  • Lorenza Rossi

    (Department of Economics and Management, University of Pavia)

Abstract
Using U.S.quarterly data we show that in response to a positive productivity shock:i) firms creation increases ii) firms destruction reduces at impact,it then overshoots its long run level,peaking three years later above its steady state. iii) banks markup reduces.To address these three facts,we provide an NK-DSGE model where firms dynamics is endogenous, the banking sector is monopolistic competitive and defaulting firms do not repay loans to banks. We show that the interaction between firms and banks is key to replicate the empirical evidence. Contrary to the conventional wisdom,in the baseline model thee efects of the shock are dampened with respect to a model without banks.

Suggested Citation

  • Lorenza Rossi, 2018. "The Overshooting of Firms Destruction, Banks and Productivity Shocks," DEM Working Papers Series 147, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0147
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    References listed on IDEAS

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    More about this item

    Keywords

    firms creation; firms destruction; monopolistic banks; countercyclical banks; markup; productivity shocks; overshooting of firms destruction; BVAR.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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