The extensive margin and monetary policy
Journal of Monetary Economics, 2008, 55, 7, 1222-1237
BERGIN, Paul, CORSETTI, Giancarlo, The extensive margin and monetary policy, Journal of Monetary Economics, 2008, 55, 7, 1222-1237 - http://hdl.handle.net/1814/10247
Retrieved from Cadmus, EUI Research Repository
The creation of new firms, referred to as the extensive margin, is a significant but overlooked dimension of monetary policy. A monetary VAR documents that monetary policy has significant effects on firm creation. An analytically tractable model combining sticky prices and firm entry shows that entry alters the transmission of monetary policy innovations, acting much like a type of investment in more standard models. Monetary policy rules that offset the uncertainty of productivity shocks can raise the mean level of entry and thereby welfare, suggesting a new motivation for stabilization policy.
Cadmus permanent link: http://hdl.handle.net/1814/10247
Full-text via DOI: 10.1016/j.jmoneco.2008.08.011
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