Zombie Firms and Creative Destruction

Economics Undergraduate senior Ekaterina Vashkinskaya presented her research paper at the International Conference “The Euro at 20: Macroeconomic Challenges” in Berlin

During graduate students session Ekaterina presented her research  Quantitative Easing and Economic Growth in the Euro Area: link through Creative Destruction in a comparison with the US and Japan 

Conference Program 

Abstract
This paper is aimed at discussing how today’s Eurozone is taking up a challenge of weak economic growth and innovative underperformance through its monetary policies and how these measures do not fully coincide with what governments seek and what economies need. This paper presents both theoretical and empirical evidence that as the expanding trend of European Central Bank’s monetary policy further exacerbates the problem of the «zombie firms» which leads to the lack of natural economic recovery, known as «creative destruction», innovative productivity in Europe suffers, which is evident from both quantitative and qualitative metrics. This research’s goal is to show that while in theory expansionary traditional and non-traditional monetary policies should entail innovation productivity through the investment’s growth and boost economic activity, there are factors that prevent it from happening, which arise from the very design of the policies. While the low interest rates do slightly influence the household behaviour, they do not lead to the intended consequences in terms of companies’ business opportunities and industries expansion through the start-ups and new companies growth: as the rates drop to the zero-lower bound, non- productive and non-innovative firms overcrowd the market, pull out investments and employment and in some cases overweight the positive effect from the monetary measures.