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Firms' heterogeneity, endogenous entry, and exit decisions

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  • Totzek, Alexander
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    Abstract

    As GDP is highly correlated with both entering and exiting firms, we develop a totally microfounded DSGE model with endogenous firms entry as well as exit decisions. We show that the simplifying assumption of a constant firms' death rate made by the recent literature on DSGE modelling can lead to counterfactual implications of the resulting dynamics. We further demonstrate that the feature of endogenous exits significantly improves the performance of the resulting model when comparing the generated second moments with those of existing models assuming exogenous exits and with the data. Moreover, we estimate the resulting Phillips curve which turns out to be also a function of the change in the mass of producers using the generalized method of moments. --

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    Bibliographic Info

    Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2009,11.

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    Date of creation: 2009
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    Handle: RePEc:zbw:cauewp:200911

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    Keywords: Heterogeneity; Producer entry and exit; Business cycles; GMM;

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Endogenous Entry and Exit over the Cycle
      by Agent Continuum in Agent Continuum on 2010-01-25 16:37:25
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    Cited by:
    1. Totzek, Alexander & Winkler, Roland C., 2010. "Fiscal stimulus in a model with endogenous firm entry," Economics Working Papers 2010,05, Christian-Albrechts-University of Kiel, Department of Economics.
    2. Carla La Croce & Lorenza Rossi, 2014. "Endogenous Entry, Banking, and Business Cycle," DEM Working Papers Series 072, University of Pavia, Department of Economics and Management.

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