policy exerts an important reallocation effect by cleansing unproductive firms and enhancing aggregate productivity. At the … same time, however, reallocation involves a reduction in the number of product variety that is central to consumer … competition, reducing aggregate productivity. Under demand uncertainty, the gain of the optimal monetary policy diminishes in firm …

their productivity and net worth and face collateral constraints that cause capital misallocation. TFP endogenously depends … equilibrium, general-equilibrium effects overturn this result: a monetary expansion increases the investment of high-productivity … firms relatively more than that of low-productivity ones, crowding out the latter and increasing TFP. We provide empirical …