Seminar Firm Heterogeneity, Capital Misallocation and Optimal Monetary Policy Departmental Seminar Add to calendar 2024-05-07 14:00 2024-05-07 15:15 Europe/Rome Firm Heterogeneity, Capital Misallocation and Optimal Monetary Policy Seminar Room 3rd Floor Villa La Fonte YYYY-MM-DD Print Share on Facebook Share on X Share on LinkedIn Send by email When 07 May 2024 14:00 - 15:15 CEST Where Seminar Room 3rd Floor Villa La Fonte Organised by Department of Economics In this seminar, Galo Nuño Barrau (Bank of Spain) will present the paper 'Firm Heterogeneity, Capital Misallocation and Optimal Monetary Policy.' This paper analyses the link between monetary policy and capital misallocation in a New Keynesian model with heterogeneous firms and financial frictions. In the model, firms with a high return to capital increase their investment more strongly in response to a monetary policy expansion, thus reducing misallocation. This feature creates a new time-inconsistent incentive for the central bank to engineer an unexpected monetary expansion to temporarily reduce misallocation. However, price stability is the optimal timeless response to demand, financial or TFP shocks. Finally, we present firm-level evidence supporting the theoretical mechanism. Scientific Organiser(s): Prof. Alexander Monge-Naranjo (EUI - Department of Economics) Speaker(s): Galo Nuño Barrau (Bank of Spain)