Fabian Schnell develops a model indicating that by keeping real interest rates too low
monetary policy can distort the allocation of resources across firms and potentially delay
economic recovery after a recession. This is a new channel of monetary policy that is
especially relevant in view of Quantitative Easing programs. A second model focuses on the
short-term implications of heterogeneously productive firms showing an acceleration effect of
technology shocks. Finally an empirical investigation of firms' price-setting behaviors shows
that time-dependent factors relative to state-dependent ones play a small role with respect
to the probability and the size of a price change. All results provide new insights for
monetary policy.
