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Limited Re-Entry And Business Cycles

Author

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  • PATRICK MACNAMARA

    (University of Manchester, United Kingdom)

Abstract

This paper builds a model of firm dynamics to study the consequences of "Limited re-entry" for macroeconomic dynamics. In the literature, exit has typically been modeled as a permanent decision whereby it is not possible for an exiting plant or firm to "re-enter" in the future. This paper relaxes this assumption by assuming that the exit decision is not permanent, but that an exiting producer still has a "limited" ability to re-enter. The model, reasonably calibrated, indicates that limited re-entry has made business cycles more volatile and persistent, and has contributed to the slow recovery following the 2007-09 recession.

Suggested Citation

  • Patrick Macnamara, 2015. "Limited Re-Entry And Business Cycles," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 40(4), pages 1-40, December.
    • Handle: RePEc:jed:journl:v:40:y:2015:i:4:p:1-40
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    References listed on IDEAS

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    1. Den Haan, Wouter J., 2010. "Assessing the accuracy of the aggregate law of motion in models with heterogeneous agents," Journal of Economic Dynamics and Control, Elsevier, vol. 34(1), pages 79-99, January.
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    3. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-938, October.
    4. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2012. "Endogenous Entry, Product Variety, and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 304-345.
    5. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    6. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, May.
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    Cited by:

    1. Benjamin Hemingway, 2020. "Macroeconomic implications of insolvency regimes," Bank of Lithuania Working Paper Series 77, Bank of Lithuania.

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    More about this item

    Keywords

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    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
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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