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Industry Dynamics over the Business Cycles

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Author Info

  • James Bergin
  • Dan Bernhardt Bernhardt

Abstract

We 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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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_935.pdf
File Function: First version 1996
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 935.

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Length: 51 pages
Date of creation: Sep 1996
Date of revision:
Handle: RePEc:qed:wpaper:935

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Related research

Keywords: stochastic heterogencity; aggregate shocks; social planner; exit; capital in place; thin markets;

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Cited by:
  1. 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.

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