The overshooting of firms’ destruction, banks and productivity shocks

Rossi, L. (2019) The overshooting of firms’ destruction, banks and productivity shocks. European Economic Review, 113. pp. 136-155. ISSN 0014-2921

Full text not available from this repository.

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, then overshoots its long-run level, peaking almost four years later above its steady-state (iii) banks’ markup reduces. To address these three facts, we provide an NK-DSGE model where firm dynamics are 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 conventional wisdom, in the baseline model, the effects of the shock are dampened with respect to a model without banks.

Item Type:
Journal Article
Journal or Publication Title:
European Economic Review
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
160481
Deposited By:
Deposited On:
08 Oct 2021 15:45
Refereed?:
Yes
Published?:
Published
Last Modified:
08 Oct 2021 15:45