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Can firm entry explain news-driven fluctuations?

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  • Pavlov, Oscar

Abstract

Most models subjected to news shocks fail to re-produce the basic aggregate comovement facts. This paper proposes that firm entry can be a channel for the real business cycle model to generate quantitatively realistic expectations-driven fluctuations. Endogenous variation in products supports aggregate comovement in response to contemporaneous shocks and news about future technology. This occurs easily even if, as argued by recent empirical studies, markups are procyclical. The model matches the key second moments of U.S. business cycles. The findings highlight the importance of future work on the implications of news-driven firm entry and its interaction with markups for optimal policy.

Suggested Citation

  • Pavlov, Oscar, 2016. "Can firm entry explain news-driven fluctuations?," Economic Modelling, Elsevier, vol. 52(PB), pages 427-434.
    • Handle: RePEc:eee:ecmode:v:52:y:2016:i:pb:p:427-434
    DOI: 10.1016/j.econmod.2015.09.023
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    Cited by:

    1. Zhao, Ningru & Shi, Yukun & Sun, Yang & Miao, Jiaming, 2020. "Aggregate labor market fluctuations under news shocks," Economic Modelling, Elsevier, vol. 90(C), pages 397-405.
    2. Cavallari, Lilia & D'Addona, Stefano, 2017. "Output stabilization in fixed and floating regimes: Does trade of new products matter?," Economic Modelling, Elsevier, vol. 64(C), pages 365-383.

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    More about this item

    Keywords

    Firm entry; Markups; Expectations-driven business cycles; News shocks; Variety effects;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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