TY - JOUR

T1 - Firms' endogenous entry and monopolistic banking in a DSGE model

AU - La Croce, C.

AU - Rossi, L.

PY - 2018/1/30

Y1 - 2018/1/30

N2 - We consider a DSGE model with monopolistically competitive banks together with endogenous firms' entry. We find that our model implies higher volatilities of both real and financial variables than those implied by a dynamic stochastic general equilibrium (DSGE) model with a monopolistic banking sector and a fixed number of firms. The response of the economic activity is also more persistent in response to all shocks. Furthermore, we show that inefficient banks enhance the endogenous propagation of the shocks with respect to a model where banks compete under perfect competition and can fully ensure against the risk of firms' default.

AB - We consider a DSGE model with monopolistically competitive banks together with endogenous firms' entry. We find that our model implies higher volatilities of both real and financial variables than those implied by a dynamic stochastic general equilibrium (DSGE) model with a monopolistic banking sector and a fixed number of firms. The response of the economic activity is also more persistent in response to all shocks. Furthermore, we show that inefficient banks enhance the endogenous propagation of the shocks with respect to a model where banks compete under perfect competition and can fully ensure against the risk of firms' default.

KW - Firms' Dynamics

KW - Firms' Endogenous Entry

KW - Inefficient Financial Markets

KW - Monopolistic Banking

U2 - 10.1017/S1365100516000493

DO - 10.1017/S1365100516000493

M3 - Journal article

VL - 22

SP - 153

EP - 171

JO - Macroeconomic Dynamics

JF - Macroeconomic Dynamics

SN - 1365-1005

IS - 1

ER -