Industry Dynamics over the Business Cycles
AbstractWe develop a theoretical model of the dynamics of an industry over the business cycle. In the economy, both aggregate demand and the productivity of a firm's technology evolve stochastically. Each period, firms must choose whether to produce or to exit and attempt to sell off their resources to an entrant, so there is a non-trivial opportunity cost of production. We characterize the intertemporal evolution of the distribution of firms, where are distinguished by their capital in place and the productivity of their technology. We characterize exit rates by age, size and productivity. A useful social planner's characterization of the competitive equilibrium is provided. Predictions of our theoretical model are broadly consistent with observed cyclical patterns.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 935.
Length: 51 pages
Date of creation: Sep 1996
Date of revision:
stochastic heterogencity; aggregate shocks; social planner; exit; capital in place; thin markets;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
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- Jeffrey R. Campbell & Beverly Lapham, 2004.
"Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U. S.-Canada Border,"
American Economic Review,
American Economic Association, vol. 94(4), pages 1194-1206, September.
- Jeffrey R. Campbell & Beverly Lapham, 2002. "Real exchange rate fluctuations and the dynamics of retail trade industries on the U.S.-Canada border," Working Paper Series WP-02-17, Federal Reserve Bank of Chicago.
- Jeffrey Campbell, 2000. "Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U.S.-Canada Border," Econometric Society World Congress 2000 Contributed Papers 1224, Econometric Society.
- Jeffrey R. Campbell & Beverly Lapham, 2001. "Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U.S.-Canada Border," NBER Working Papers 8558, National Bureau of Economic Research, Inc.
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