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Macroeconomic fluctuations and firm entry : theory and evidence

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Author Info
Vivien Lewis () (Center for Economic Studies, Catholic University Leuven)

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Abstract

This 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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Paper provided by National Bank of Belgium in its series Research series with number 200610-13.

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Length: 37 pages
Date of creation: Oct 2006
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Handle: RePEc:nbb:reswpp:200610-13

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Related research
Keywords: firm entry; VAR; business cycles;

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Find related papers by JEL classification:
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

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References listed on IDEAS
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  5. Faust, Jon, 1998. "The robustness of identified VAR conclusions about money," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 207-244, December. [Downloadable!] (restricted)
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  11. Florin Bilbiie & Fabio Ghironi & Marc J. Melitz, 2005. "Business Cycles and Firm Dynamics," 2005 Meeting Papers 842, Society for Economic Dynamics. [Downloadable!]
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  14. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09. [Downloadable!] (restricted)
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  15. Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1131-1159, September. [Downloadable!] (restricted)
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  20. Jon Faust, 1998. "The robustness of identified VAR conclusions about money," International Finance Discussion Papers 610, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nancy Masschelein, 2007. "Monitoring pro-cyclicality under the capital requirements directive : preliminary concepts for developing a framework," Documents series 200711-22, National Bank of Belgium. [Downloadable!]
  2. Florin Bilbiie & Fabio Ghironi & Marc J. Melitz, 2007. "Endogenous Entry, Product Variety, and Business Cycles," NBER Working Papers 13646, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Frédéric Lagneaux, 2008. "Economic Importance of Belgian Transport Logistics," Documents series 200801-01, National Bank of Belgium. [Downloadable!]
  4. Annick Bruggeman, 2007. "Can Excess Liquidity Signal an Asset Price Boom?," Research series 200708-08, National Bank of Belgium. [Downloadable!]
  5. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2007. "Monetary Policy and Business Cycles with Endogenous Entry and Product Variety," NBER Working Papers 13199, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Joachim Keller, 2008. "Agency problems in structured finance – a case study of European CLOs," Documents series 200808-22, National Bank of Belgium. [Downloadable!]
  7. Lenno Uuskyla, 2007. "Firm entry and liquidity," Bank of Estonia Working Papers 2007-06, Bank of Estonia, revised 26 Aug 2007. [Downloadable!]
  8. Carine Swartenbroekx, 2007. "The gas chain : influence of its specificities on the liberalisation process," Documents series 200711-24, National Bank of Belgium. [Downloadable!]
  9. Lenno Uusküla, 2008. "Liquidity and productivity shocks: A look at sectoral firm creation," Bank of Estonia Working Papers 2008-05, Bank of Estonia, revised 30 Oct 2008. [Downloadable!]
  10. Philippe Moës, 2008. "Multivariate structural time series models with dual cycles : implications for measurement of output gap and potential growth," Research series 200808-20, National Bank of Belgium. [Downloadable!]
  11. François Coppens & Fernando Gonzáles & Gerhard Winkler, 2007. "The performance of credit rating systems in the assessment of collateral used in Eurosystem monetary policy operations," Research series 200710-12, National Bank of Belgium. [Downloadable!]
    Other versions:
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