Multi-product firms and business cycle dynamics
AbstractRecent empirical evidence provided by Bernard et al. (2010) and Broda and Weinstein (2010) shows that a significant share of product creation and destruction in U.S. industries occurs within existing firms and accounts for a relevant share of aggregate output. In the present paper, and consistently with this evidence, we relax the standard assumption of mono-product firms that is typically made in dynamic general equilibrium models. Building on the work of Jaimovich and Floetotto (2008), we develop an RBC model with multi-product firms and endogenous markups to assess the implications of the intra-firm extensive margin on business cycle fluctuations. In this environment, the procyclicality of product creation emerges as a consequence of strategic interactions among firms. Because of the proliferation effect induced by changes in product scope, our model embodies a quantitatively important magnification mechanism of technology shocks.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2011-20.
Length: 33 pages
Date of creation: Sep 2011
Date of revision:
Publication status: Published by Ivie
Multi-product Firms; Business Cycles; Firm Dynamics.;
Other versions of this item:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-15 (All new papers)
- NEP-BEC-2011-10-15 (Business Economics)
- NEP-CBA-2011-10-15 (Central Banking)
- NEP-DGE-2011-10-15 (Dynamic General Equilibrium)
- NEP-ENT-2011-10-15 (Entrepreneurship)
- NEP-MAC-2011-10-15 (Macroeconomics)
- NEP-SBM-2011-10-15 (Small Business Management)
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