FIRM ENTRY AND LIQUIDITY Lenno Uusküla*   Working Papers of Eesti Pank No 6/2007

This paper shows that fewer firms enter after a contractionary liquidity shock and that firm entry reacts quicker to liquidity than the economic activity indicator. The results are obtained by using Estonian data for the period 1995M1-2006M7. Various structural VAR and VECM models are exploited to identify the liquidity shock.
JEL Code: E52, C32
Key words: monetary transmission, firm entry, VAR, VECM, Estonia

* The author would like to thank the Estonian Enterprises Register, especially Mailis Mölder for providing the data and the participants of the Bank of Estonia seminars for their comments.

Author's e-mail address: lenno.uuskyla@epbe.ee

The views expressed are those of the author and do not necessarily represent the official views of Eesti Pank.

Contents

1. Introduction

2. Literature

3. Data description

4. Identification of the liquidity shock

4.1. Identification in VAR

4.2. Identification in VECM

4.3. Technical aspects of the estimation

5. Results

5.1. Impulse response analysis

5.2. Forecast error variance decomposition

6. Conclusions

References

Firm entry and liquidity, Working Papers of Eesti Pank No 6/2007 (PDF*)

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