Business demography in Poland: a DSGE approach

Abstract

Purpose: This article explores the relationship between macroeconomic factors and business demography in the Poland in years 2012-2023. Recent events, such as the COVID-19 pandemic and the war in Ukraine, have introduced unique challenges to the Polish economy. Understanding these dynamics is essential for informed decision making. Design/methodology/approach: The objectives of the paper are achieved using the DSGE approach with fixed number of firms. In the given model, the firm creation process is perceived in a procyclical way using the sunk entry cost mechanism. Findings: Key findings include the impact of negative productivity shocks on new firms, leading to increased costs and reduced investment attractiveness, resulting in a decline in the total number of companies. In addition, increased public consumption drives up production levels, affecting interest rates and new business opportunities. Technological shocks affect prices and inflation, influencing the number of new companies. Tightening monetary policy impacts capital returns and employment levels. This stimulates the emergence of new firms. Research limitations/implications: Research limitations are strictly related to the limitation of the tool used. Among the limitations of DSGE models are simplifying assumptions (including perfect rationality, representative agents, and complete markets), lack of detail in the financial sector detail, homogeneity between agents, exogeneity of shocks, calibration, and estimation challenges. Despite these limitations, DSGE models have become a cornerstone of modern macroeconomic analysis and policy evaluation. Social implications: The findings have important policy implications. Policymakers should consider the potential consequences of their decisions on the business environment, especially in terms of labor market regulations, public spending, and monetary policy. Originality/value: There are no or few research papers concerning business demography in Poland using the DSGE approach. Keywords: business demography, DSGE, procyclical entry. Category of the paper: Research paper.