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Multi-product firms and business cycle dynamics

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  • Minniti, Antonio
  • Turino, Francesco

Abstract

Recent empirical evidence provided by Bernard et al. (2010) and Broda and Weinstein (2010) shows that a significant share of product creation and destruction in U.S. industries occurs within existing firms and accounts for an important share of aggregate output. In the present paper, and consistent with this evidence, we relax the standard assumption of mono-product firms in a dynamic stochastic general equilibrium model. Our analysis is based on a model of firm dynamics with two deviations from the conventional real business cycle framework—imperfect competition with endogenous entry and multi-product firms. The combination of these two features enables our model to successfully generate a mechanism that accounts for the strong procyclicality of product creation. Due to the proliferation effect induced by firm-level adjustments in product scope, we show that our model embodies a quantitatively important magnification mechanism of aggregate shocks.

Suggested Citation

  • Minniti, Antonio & Turino, Francesco, 2013. "Multi-product firms and business cycle dynamics," European Economic Review, Elsevier, vol. 57(C), pages 75-97.
  • Handle: RePEc:eee:eecrev:v:57:y:2013:i:c:p:75-97
    DOI: 10.1016/j.euroecorev.2012.10.008
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    References listed on IDEAS

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    Cited by:

    1. Dudley Cooke & Tatiana Damjanovic, 2017. "The Macroeconomic Implications of Firm Selection," Discussion Papers 1709, Exeter University, Department of Economics.
    2. Oscar Pavlov & Mark Weder, 2017. "Product Scope and Endogenous Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 175-191, March.
    3. Etro, Federico & Rossi, Lorenza, 2015. "Optimal monetary policy under Calvo pricing with Bertrand competition," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 423-440.
    4. repec:red:issued:15-258 is not listed on IDEAS
    5. Masashige Hamano, 2013. "On business cycles of variety and quality," CREA Discussion Paper Series 13-21, Center for Research in Economic Analysis, University of Luxembourg.
    6. Lenno Uuskula, 2015. "Firm turnover and inflation dynamics," Bank of Estonia Working Papers wp2015-01, Bank of Estonia, revised 03 Feb 2015.
    7. repec:eee:inecon:v:110:y:2018:i:c:p:103-118 is not listed on IDEAS
    8. Etro, Federico & Rossi, Lorenza, 2015. "New-Keynesian Phillips curve with Bertrand competition and endogenous entry," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 318-340.
    9. Masashige Hamano & Francesco Zanetti, 2017. "Endogenous Turnover and Macroeconomic Dynamics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 263-279, October.
    10. repec:eee:moneco:v:93:y:2018:i:c:p:1-20 is not listed on IDEAS
    11. Cellini, Roberto & Martorana, Marco Ferdinando & Platania, Felicita, 2014. "The multi-product nature of the firm in the arts sector: A case study on ‘Centro Zo’," MPRA Paper 60677, University Library of Munich, Germany.

    More about this item

    Keywords

    Multi-product firms; Business cycles; Firm dynamics;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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