| My dissertation centers on the role of firm decision making for macroeconomic outcomes.;The first chapter, written jointly with Carlos Carvalho, focuses on the timing of price setting decisions. In particular, it explores the implication of different price setting rules for the real effects of monetary shocks. We show that, for common types of shocks, a monetary shock has a real effect which is increasing not only on how long firms take on average to revise their prices or price plans, but also on the variance and third moments of the underlying distribution of the duration of prices or price plans. The results hold for a large class of time dependent price setting models, including sticky price and sticky information models.;The second chapter focuses on the role of lags in production for production decisions. It shows that in financial crisis episodes, industries where firms typically hold more inventories relative to their variable costs did relatively worse. In the chapter, I then argue that these cross-sectional differences can be reasonably assigned to a large and persistent increase in the interest rate in an environment where industries possess technologically determined differences in average production time.;The third chapter focuses on investment decision, with special attention to the role of liquidity considerations. The central hypothesis is that entrepreneurs can only sell their fixed capital at a price below its replacement cost. Under this assumption, there is a liquidity discount on fixed capital. I then consider the response of firms to shocks to their holdings of liquid assets. Given the calibration of the model, I find that a decrease in the holdings of liquid assets equal to 20% of the fixed capital stock has a negative impact on expected investment that is noticeable years after the shock. |
