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Firm Dynamics in News Driven Business Cycle: The Role of Endogenous Survival Rate

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  • Xu, Zhiwei
  • Fan, Haichao

Abstract

Our structural VAR shows that the new business formation in U.S. data has similar positive co-movement pattern as common aggregate variables in response to a favorable anticipated shock about technology. However, incorporating �firm dynamics into Jaimovich and Rebelo's (Jaimovich and Rebelo, 2009, American Economic Review) model cannot explain our empirical fi�nding. Even worse, the model predicts an aggregate recession instead of a boom. Then, we show that this problem can be resolved with a minor modification by introducing endogenous survival rate of the new entrants.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30203.

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Date of creation: Nov 2010
Date of revision: Feb 2011
Handle: RePEc:pra:mprapa:30203

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Keywords: Firm Dynamics; Aggregate Co-movement; Expectation Driven Business Cycle; News Shocks;

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  1. Paul Beaudry & Franck Portier, 2004. "When Can Changes in Expectations Cause Business Cycle Fluctuations in Neo-Classical Settings?," NBER Working Papers 10776, National Bureau of Economic Research, Inc.
  2. Paul Beaudry & Franck Portier, 2004. "Stock Prices, News and Economic Fluctuations," NBER Working Papers 10548, National Bureau of Economic Research, Inc.
  3. Bilbiie, Florin O. & Ghironi, Fabio & Melitz, Marc J., 2012. "Endogenous Entry, Product Variety, and Business Cycles," Scholarly Articles 10914281, Harvard University Department of Economics.
  4. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 2000. "The role of investment-specific technological change in the business cycle," European Economic Review, Elsevier, Elsevier, vol. 44(1), pages 91-115, January.
  5. Alok Johri & Christopher Gunn, 2009. "News and knowledge capital," 2009 Meeting Papers, Society for Economic Dynamics 763, Society for Economic Dynamics.
  6. Paul Beaudry & Bernd Lucke, 2010. "Letting Different Views about Business Cycles Compete," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 413-455 National Bureau of Economic Research, Inc.
  7. Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series, European Central Bank 0955, European Central Bank.
  8. Paul Beaudry & Fabrice Collard, 2006. "Gold rush fever in business cycles," 2006 Meeting Papers, Society for Economic Dynamics 8, Society for Economic Dynamics.
  9. Nir Jaimovich & Sergio Rebelo, 2006. "Can News About the Future Drive the Business Cycle?," NBER Working Papers 12537, National Bureau of Economic Research, Inc.
  10. Lilia Karnizova, 2008. "The Spirit of Capitalism and Expectation Driven Business Cycles," Working Papers, University of Ottawa, Department of Economics 0804E, University of Ottawa, Department of Economics.
  11. Mata, Jose & Portugal, Pedro, 1994. "Life Duration of New Firms," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 42(3), pages 227-45, September.
  12. Den Haan, Wouter J. & Kaltenbrunner, Georg, 2009. "Anticipated growth and business cycles in matching models," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(3), pages 309-327, April.
  13. David Audretsch & Patrick Houweling & A. Thurik, 2000. "Firm Survival in the Netherlands," Review of Industrial Organization, Springer, Springer, vol. 16(1), pages 1-11, February.
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