We study the relation between financial frictions and the trade of privately held firms. In the U.S. one out of five entrepreneurs purchased their business, however, this number has decreased during the last 30 years. Further, in the cross section, younger, smaller, and high return to capital firms exhibit the highest probabilities of trade. We propose a general equilibrium model of entrepreneurship and frictional trade of firms that explains these findings. Gains from trading firms in our model arise from the presence of financial frictions with credit constrained firms, which tend to be young and small, being the ones most likely to be traded. Our quantitative exercises suggest that the better allocation of capital due to the trade of firms may account for 5 to 8% of entrepreneurial output. Moreover, we found that easier access to credit can explain 40% of the fall in the share of traded firms observed during the last decades.
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First Place (Undergraduate Thesis Category) of the 2015 Citibanamex Economic Prize.
In this paper I use novel micro data underlying the Mexican CPI to establish stylized facts about prices in the Mexican economy. I then analyze the implications and consistency of the empirical results for the degree of monetary non-neutrality generated in both time and state-dependent pricing models. I find that the real effects of monetary shocks importantly depend on the type of nominal rigidity considered and on the treatment of sales in the statistics that are calibrated into the models.
We document a negative relationship between the age of a item’s price -the duration of a price between price changes- and exchange rate pass-through. Using novel price micro data from the Mexican CPI, we find that exchange rate pass-through is higher when prices are younger (recently changed) than when prices are old. Specifically, exchange-rate passthrough is 50% smaller for six-month old prices compared to one-month old prices. We provide further evidence of the negative relationship between age and pass-through using an exogenous natural experiment. In January of 2014, there was an unexpected change in the value added tax for a variety of products in Mexico that forced many prices to change and thus become young. We find that exchange-rate pass-through is larger during the six months window after the VAT shock compared to the six months previous to the shock. The evidence documented in this paper supports models of price-setting behaviour with age dependence.
As a consequence of the international environment, the currencies of many emerging market economies have experienced important depreciations in a context of high volatility in financial markets. The Mexican peso has not been the exception to the above situation. In this setting, the exchange rate pass-through into consumer prices deserves special attention as it allows us to evaluate the anchoring of inflation expectations. To address this issue, we use non-public micro data from the Mexican CPI to analyze the relation between exchange rate and price-setting in Mexico for the period between January 2011 and April 2016. Our estimates suggest that the exchange rate pass-through into consumer prices is low.