Monetary Policy, Productivity, and Market Concentration

26 Pages Posted: 3 Jun 2020

See all articles by Andrea Colciago

Andrea Colciago

De Nederlandsche Bank - Research Department; Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

Riccardo Silvestrini

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: May 28, 2020

Abstract

This paper builds a New Keynesian industry dynamics model for the analysis of macroeconomic fluctuations and monetary policy. A continuum of heterogeneous firms populates the economy, markets are imperfectly competitive and nominal wages are sticky. An expansionary monetary policy shock triggers a response in labor productivity. By reducing borrowing costs, the shock initially attracts low productivity firms in the market. As a result, aggregate productivity decreases on impact. It then overshoots its initial level since, after the initial over-crowding, competition cleanses the market from low productivity firms. The overshooting amplifies the response of the main macroeconomic variables to the shock. A high ex-ante degree of market concentration partially impairs the transmission of monetary policy by disrupting the entry and exit mechanism.

Keywords: Market Concentration, Monetary Policy, Competition, Productivity

JEL Classification: D42, E52, E58, L16

Suggested Citation

Colciago, Andrea and Silvestrini, Riccardo, Monetary Policy, Productivity, and Market Concentration (May 28, 2020). De Nederlandsche Bank Working Paper No. 685, Available at SSRN: https://ssrn.com/abstract=3618002 or http://dx.doi.org/10.2139/ssrn.3618002

Andrea Colciago (Contact Author)

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

Riccardo Silvestrini

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
208
Abstract Views
899
Rank
261,982
PlumX Metrics