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Young Firms and Monetary Policy Transmission

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Abstract

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.

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  • Thomas McGregor, 2021. "Young Firms and Monetary Policy Transmission," IMF Working Papers 2021/063, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2021/063
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    Cited by:

    1. Singh, Aarti & Suda, Jacek & Zervou, Anastasia, 2021. "Heterogeneous labour market response to monetary policy: small versus large firms," Working Papers 2021-07, University of Sydney, School of Economics, revised Nov 2021.
    2. Gulnara Nolan & Jonathan Hambur & Philip Vermeulen, 2023. "Does Monetary Policy Affect Non-mining Business Investment in Australia? Evidence from BLADE," RBA Research Discussion Papers rdp2023-09, Reserve Bank of Australia.

    More about this item

    Keywords

    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;
    All these keywords.

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