Recent studies have shown that the dynamics of firms (growth, job relocation and exit) are negatively associated with the firm's size. In this paper we analyze whether financial factors are important in generating this negative relation. We develop a model in which, at each point in time, firms...

In this paper we study the optimal and time-consistent policy in a model economy that integrates the modern theory of unemployment with a liquidity model of monetary transmission. When the economy is subject to aggregate productivity shocks the optimal monetary policy is pro-cyclical---it...