Macroeconomic fluctuations and firm entry : theory and evidence
AbstractThis paper studies the behaviour of firm entry and exit in response to macroeconomic shocks. We formulate a dynamic stochastic general equilibrium model with an endogenous number of producers. From the calibrated model, we derive a minimum set of robust sign restrictions to identify four kinds of macroeconomic shocks in a vector autoregression, namely supply, demand, monetary and entry cost shocks. The variables entering the VAR are output, inflation, the nominal interest rate, profits and firm entry. The response of firm entry to the various shocks is freely estimated. Our main finding is that entry responds significantly to all types of shocks. The results also show a crowding-in of firm entry following an exogenous rise in demand, consistent with the effect of a consumption preference shock predicted by the model
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Bibliographic InfoPaper provided by National Bank of Belgium in its series Working Paper Research with number 103.
Length: 37 pages
Date of creation: Oct 2006
Date of revision:
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firm entry; VAR; business cycles;
Other versions of this item:
- Vivien Lewis, 2006. "Macroeconomic fluctuations and firm entry: theory and evidence," Computing in Economics and Finance 2006 112, Society for Computational Economics.
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-21 (All new papers)
- NEP-BEC-2006-10-21 (Business Economics)
- NEP-CBA-2006-10-21 (Central Banking)
- NEP-COM-2006-10-21 (Industrial Competition)
- NEP-DGE-2006-10-21 (Dynamic General Equilibrium)
- NEP-ENT-2006-10-21 (Entrepreneurship)
- NEP-MAC-2006-10-21 (Macroeconomics)
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