Asymmetric Firm Dynamics under Rational Inattention
AbstractWe document new evidence on the link between business failures, markups and business cycle asymmetry in the U.S. economy. We study a model where costly information-processing constraints affect exit decisions of heterogeneous firms in the presence of an aggregate demand externality. We show that such a model is capable of explaining both the novel and the classical empirical evidence on output growth asymmetry, the asymmetry between entry and exit rates, as well as counter-cyclical variations in profit margins.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 161.
Date of creation: 2012
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-07 (All new papers)
- NEP-BEC-2013-01-07 (Business Economics)
- NEP-DGE-2013-01-07 (Dynamic General Equilibrium)
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