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Returns to scale, firm entry, and the business cycle

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  • Smirnyagin, Vladimir

Abstract

In the U.S. data, aggregate financial conditions play an important role in accounting for the formation of firms with high returns to scale. A version of a firm dynamics model with financial frictions and the ability of potential entrepreneurs to choose their returns to scale can match the data. In the estimated model, financial frictions slow the rate at which businesses with high returns to scale grow disproportionately; this discourages such firms from entering during recessions. The “missing generation” of firms with high returns to scale delays recoveries in the aftermath of economic crises. +

Suggested Citation

  • Smirnyagin, Vladimir, 2023. "Returns to scale, firm entry, and the business cycle," Journal of Monetary Economics, Elsevier, vol. 134(C), pages 118-134.
    • Handle: RePEc:eee:moneco:v:134:y:2023:i:c:p:118-134
    DOI: 10.1016/j.jmoneco.2022.12.002
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    More about this item

    Keywords

    Business cycles; Firm dynamics; Financial frictions;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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