Exit and Entry, Increasing Returns to Specialization, and Business Cycles
AbstractThe effects of entry and exit by monopolistically competitive intermediate goods producers on equilibrium business cycles are analyzed in the presence of internal returns to scale and external returns to specialization. In the environment studied, market power and endogenous entry and exit, in themselves, have little effect on the propagation of technology shocks. In contrast, internal returns to scale dampen the effects of these shocks while external returns to specialization produce a multiplier which accentuates their effects. The multiplier arises as entry and exit of firms over the business cycle causes endogenous fluctuations in the productivity of intermediate inputs. These endogenous productivity fluctuations cause the Solow residual both to mismeasure technology shocks and to be strongly correlated with government spending shocks. The results also indicate that the extent to which technology shock can account for aggregate fluctuations may be greater than suggested by competitive real business cycle models.
Download InfoIf 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.
Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 871.
Date of creation: Jan 1993
Date of revision:
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Boyan Jovanovic & Saul Lach, 1993. "Diffusion Lags and Aggregate Fluctuations. New Name: Product Innovation and the Business Cycle," NBER Working Papers 4455, National Bureau of Economic Research, Inc.
- Portier, Franck, 1995. "Le rôle des variations de taux de marge dans les fluctuations macroéconomiques conjoncturelles," L'Actualité Economique, Société Canadienne de Science Economique, vol. 71(2), pages 218-249, juin.
- Satyajit Chatterjee & Russell Cooper, 1993.
"Entry and Exit, Product Variety and the Business Cycle,"
NBER Working Papers
4562, National Bureau of Economic Research, Inc.
- Satyajit Chatterjee & Russell W. Cooper, 1993. "Entry and exit, product variety and the business cycle," Working Papers 93-30, Federal Reserve Bank of Philadelphia.
- Ambler, Steve & Cardia, Emanuela & Farazli, Jeannine, 1999.
"Export promotion, learning by doing and growth,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 23(5-6), pages 747-772, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Babcock).
If references are entirely missing, you can add them using this form.