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Endogenous Firms' ?Exit, Inefficient Banks and Business Cycle Dynamics

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  • Lorenza Rossi

Abstract

I consider a NK-DSGE model with endogenous ?firms'? exit and entry together with a monopolistic competitive banking sector, where defaulting ?firms do not repay loans to banks. I show that the exit margin is an important shock transmission channel. It implies: i) an endogenous countercyclical number of fi?rms destruction; ii) an endogenous countercyclical bank markup and spread. The interaction between i) and ii) generates a stronger propagation mechanism with respect to a model with efficient banks. Compared to a model with exogenous exit the model generates a correlation between output and ?firms' ?entry closer to the data.

Suggested Citation

  • Lorenza Rossi, 2015. "Endogenous Firms' ?Exit, Inefficient Banks and Business Cycle Dynamics," Working Papers LuissLab 15117, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    • Handle: RePEc:lui:lleewp:15117
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    Cited by:

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    4. Alan Finkelstein-Shapiro & Victoria Nuguer, 2019. "Domestic Financial Participation and Financial Policies in Emerging Economies," 2019 Meeting Papers 1479, Society for Economic Dynamics.

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    More about this item

    Keywords

    fi?rms ?endogenous exit; ?firms dynamics; monopolistic banking; inefficient fi?nancial markets; countercyclical bank markup; interest rate spread..;
    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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