Advanced Search
MyIDEAS: Login to save this paper or follow this series

Endogenous Entry, Product Variety, and Business Cycles

Contents:

Author Info

  • Florin Bilbiie
  • Fabio Ghironi
  • Marc J. Melitz

Abstract

This paper builds a framework for the analysis of macroeconomic fluctuations that incorporates the endogenous determination of the number of producers over the business cycle. Economic expansions induce higher entry rates by prospective entrants subject to irreversible investment costs. The sluggish response of the number of producers (due to the sunk entry costs) generates a new and potentially important endogenous propagation mechanism for real business cycle models. The stock-market price of investment (corresponding to the creation of new productive units) determines household saving decisions, producer entry, and the allocation of labor across sectors. The model performs at least as well as the benchmark real business cycle model with respect to the implied second-moment properties of key macroeconomic aggregates. In addition, our framework jointly predicts a procyclical number of producers and procyclical profits even for preference specifications that imply countercyclical markups. When we include physical capital, the model can reproduce the variance and autocorrelation of GDP found in the data.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w13646.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13646.

as in new window
Length:
Date of creation: Nov 2007
Date of revision:
Publication status: published as Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2012. "Endogenous Entry, Product Variety, and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 304 - 345.
Handle: RePEc:nbr:nberwo:13646

Note: EFG
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Alberto Alesina & Silvia Ardagna & Giuseppe Nicoletti & Fabio Schiantarelli, 2002. "Regulation and Investment," Boston College Working Papers in Economics, Boston College Department of Economics 549, Boston College Department of Economics.
  2. Devereux, Michael B & Head, Allen C & Lapham, Beverly J, 1996. "Monopolistic Competition, Increasing Returns, and the Effects of Government Spending," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 28(2), pages 233-54, May.
  3. Diego Comin & Mark Gertler, 2003. "Medium Term Business Cycles," NBER Working Papers 10003, National Bureau of Economic Research, Inc.
  4. Enchuan Shao & Pedro Silos, 2008. "Firm entry and labor market dynamics," Working Paper, Federal Reserve Bank of Atlanta 2008-17, Federal Reserve Bank of Atlanta.
  5. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
  6. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  7. Florin Bilbiie & Fabio Ghironi & Marc Melitz, 2012. "Endogenous Entry, Product Variety and Business Cycles," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00680634, HAL.
  8. Rotemberg, Julio J. & Woodford, Michael, 1999. "The cyclical behavior of prices and costs," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 16, pages 1051-1135 Elsevier.
  9. Boyan Jovanovic, 2007. "Investment Options and the Business Cycle," NBER Working Papers 13307, National Bureau of Economic Research, Inc.
  10. Jordi Galí & J. David López Salido & Javier Vallés, 2003. "Understanding the effects of government spending on consumption," Banco de Espa�a Working Papers 0321, Banco de Espa�a.
  11. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
  12. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(5), pages 915-38, October.
  13. Miles S. Kimball & John G. Fernald & Susanto Basu, 2006. "Are Technology Improvements Contractionary?," American Economic Review, American Economic Association, American Economic Association, vol. 96(5), pages 1418-1448, December.
  14. Uhlig, H., 1995. "A toolkit for analyzing nonlinear dynamic stochastic models easily," Discussion Paper, Tilburg University, Center for Economic Research 1995-97, Tilburg University, Center for Economic Research.
  15. Giancarlo Corsetti & Philippe Martin & Paolo Pesenti, 2005. "Productivity Spillovers, Terms of Trade and the 'Home Market Effect'," Sciences Po publications 4964, Sciences Po.
  16. Marimon, Ramon & Scott, Andrew (ed.), 1999. "Computational Methods for the Study of Dynamic Economies," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198294979, October.
  17. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," RCER Working Papers 467, University of Rochester - Center for Economic Research (RCER).
  18. Cardia, E. & Ambler, S., 1993. "The Cyclical Behaviour of Wages and Profits Under Imperfect Competition," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9330, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  19. Jeffrey R. Campbell, 1997. "Entry, Exit, Embodied Technology, and Business Cycles," NBER Working Papers 5955, National Bureau of Economic Research, Inc.
  20. Gali, Jordi, 1995. "Product diversity, endogenous markups, and development traps," Journal of Monetary Economics, Elsevier, Elsevier, vol. 36(1), pages 39-63, August.
  21. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(4), pages 1329-1368, November.
  22. Andrew B. Bernard & Stephen Redding & Peter.K Schott, 2006. "Multi-product firms and product switching," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3687, London School of Economics and Political Science, LSE Library.
  23. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 60(5), pages 1127-50, September.
  24. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, American Economic Association, vol. 82(3), pages 430-50, June.
  25. Jordi Gali, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations," NBER Working Papers 5721, National Bureau of Economic Research, Inc.
  26. Nicola Cetorelli & Philip Strahan, 2004. "Finance as a barrier to entry: bank competition and industry structure in local U.S. markets," Working Paper Series, Federal Reserve Bank of Chicago WP-04-04, Federal Reserve Bank of Chicago.
  27. Vivien Lewis, 2006. "Macroeconomic fluctuations and firm entry: theory and evidence," Computing in Economics and Finance 2006, Society for Computational Economics 112, Society for Computational Economics.
  28. Christian Broda & David E. Weinstein, 2007. "Product Creation and Destruction: Evidence and Price Implications," NBER Working Papers 13041, National Bureau of Economic Research, Inc.
  29. Roberto M. Samaniego, 2008. "Entry, Exit and Business Cycles in a General Equilibrium Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 529-541, July.
  30. Fabio Ghironi & Marc J. Melitz, 2004. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," Boston College Working Papers in Economics, Boston College Department of Economics 599, Boston College Department of Economics.
  31. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
  32. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  33. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  34. Yoonsoo Lee & Toshihiko Mukoyama, 2008. "Entry, exit and plant-level dynamics over the business cycle," Working Paper 0718, Federal Reserve Bank of Cleveland.
  35. 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.
  36. Federico Etro & Andrea Colciago, 2010. "Endogenous Market Structures and the Business Cycle," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 120(549), pages 1201-1233, December.
  37. Dos Santos Ferreira, Rodolphe & Dufourt, Frederic, 2006. "Free entry and business cycles under the influence of animal spirits," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(2), pages 311-328, March.
  38. Michele Boldrin & Lawrence J. Christiano & Jonas D. M. Fisher, 2000. "Habit persistence, asset returns and the business cycle," Staff Report, Federal Reserve Bank of Minneapolis 280, Federal Reserve Bank of Minneapolis.
  39. Devereux, Michael B. & Head, Allen C. & Lapham, Beverly J., 1996. "Aggregate fluctuations with increasing returns to specialization and scale," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 20(4), pages 627-656, April.
  40. repec:rus:hseeco:122439 is not listed on IDEAS
  41. Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(6), pages 1163-90, December.
  42. Cook, David, 2001. "Time to enter and business cycles," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 25(8), pages 1241-1261, August.
  43. Feenstra, Robert C., 2003. "A homothetic utility function for monopolistic competition models, without constant price elasticity," Economics Letters, Elsevier, Elsevier, vol. 78(1), pages 79-86, January.
  44. Kostas Axarloglou, 2003. "The Cyclicality of New Product Introductions," The Journal of Business, University of Chicago Press, vol. 76(1), pages 29-48, January.
  45. Den Haan, Wouter & Sedlacek, Petr, 2009. "Inefficient employment decisions, entry costs, and the cost of fluctuations," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7468, C.E.P.R. Discussion Papers.
  46. Jaimovich, Nir & Floetotto, Max, 2008. "Firm dynamics, markup variations, and the business cycle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(7), pages 1238-1252, October.
  47. Sharon G. Harrison, 2003. "Returns to Scale and Externalities in the Consumption and Investment Sectors," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 963-976, October.
  48. Campbell, John Y., 1994. "Inspecting the mechanism: An analytical approach to the stochastic growth model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 33(3), pages 463-506, June.
  49. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  50. Satyajit Chatterjee & Russell W. Cooper, 1993. "Entry and exit, product variety and the business cycle," Working Papers 93-30, Federal Reserve Bank of Philadelphia.
  51. Ricardo J. Caballero & Mohamad L. Hammour, 1991. "The Cleansing Effect of Recessions," NBER Working Papers 3922, National Bureau of Economic Research, Inc.
  52. Jeffrey R. Campbell, 1997. "Computational Appendix to Entry, Exit, Embodied Technology, and Business Cycles," Technical Appendices campbell98, Review of Economic Dynamics.
  53. Mark Bils & Peter J. Klenow, 2001. "The Acceleration of Variety Growth," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 274-280, May.
  54. Benassy, Jean-Pascal, 1996. "Monopolistic competition, increasing returns to specialization and output persistence," Economics Letters, Elsevier, Elsevier, vol. 52(2), pages 187-191, August.
  55. Judd, Kenneth L, 1985. "On the Performance of Patents," Econometrica, Econometric Society, Econometric Society, vol. 53(3), pages 567-85, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:13646. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.