On the Macroeconomic Implications of Firm Dynamics, Banking, and Reputation
Since the publication of Keynes' “General Theory of Employment, Interest, and Money” in 1936 many new ideas and solution concepts for macroeconomic problems emerged, disappeared, and were combined in order to appropriately describe macroeconomic phenomena. Nowadays, New Keynesian frameworks are the workhorse models for monetary macroeconomics. These models combine elements of the Real Business Cycle literature such as rational expectations, microfoundations, and the concept of the dynamic stochastic general equilibrium with Keynesian elements such as nominal price rigidities and market imperfections. However, we claim that New Keynesian models still have some weaknesses. Therefore, this thesis contributes to the literature by providing - to our mind - important extensions of the baseline New Keynesian model and by analyzing new aspects of monetary and fiscal policy. First, we provide a New Keynesian framework which incorporates an oligopolistic banking sector where banks endogenously enter and leave the market. The resulting model generates significant amplification and persistence effects and depicts the empirically observed counter-cyclical nature of bank mark-ups. Second, we develop a New Keynesian framework where the mass of firms is endogeneously determined. In contrast to the recent literature, the entry and exit mechanism is based on the assumption of heterogeneity across firms. The resulting model performs better than existing frameworks with an endogenous mass of firms with respect to the generated second moments. Third, we incorporate the time-inconsistency problem a la Kydland/Prescott-Barrro/Gordon in a New Keynesian framework. In contrast to the original framework, this enables us to consider the demand side of the economy and to abstract from the assumption that the central bank can directly control for the inflation rate. Fourth, traditional New Keynesian approaches analyze the impacts of fiscal stimuli on standard measures of economic activity such as GDP, employment, and capital investment but neglect their impact on the mass of firms operating in the market. However, we show that the mass of firms is an important dimension for evaluating fiscal policy.