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Endogenous Turnover and Macroeconomic Dynamics

Author

Listed:
  • Masashige Hamano

    (Waseda University)

  • Francesco Zanetti

    (Oxford University)

Abstract

This paper introduces endogenous product entry and exit based on creation and destruction of product variety in a general equilibrium model. Recessionary technology shocks induce exit of unprofitable products on impact, allocating resources towards more productive production lines. However, during the recovery phase, less productive production lines survive destruction, counteracting the original increase in productivity. The analysis shows that recoveries hinge on lower product destruction rather than higher product creation. We find that product heterogeneity and the persistence of technology shocks play a critical role for the cyclicality of product turnover. Endogenous product destruction is important to evaluate the effect of permanent policies of entry deregulation and subsidies aimed to stimulate the economy. (Copyright: Elsevier)

Suggested Citation

  • 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.
    • Handle: RePEc:red:issued:15-258
    DOI: 10.1016/j.red.2017.06.003
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    Cited by:

    1. Miguel Casares & Jean-Christophe Poutineau, 2014. "A DSGE model with endogenous entry and exit," Carleton Economic Papers 14-06, Carleton University, Department of Economics.
    2. 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.
    3. Mikel Casares, 2015. "Entry and exit in recent US business cycles," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 1503, Departamento de Economía - Universidad Pública de Navarra.
    4. 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.
    5. Bondarev, Anton, 2018. "Heterogeneous R&D spillovers and sustainable growth: Limits to efficient regulation," Working papers 2018/04, Faculty of Business and Economics - University of Basel.
    6. Fabio Ghironi, 2018. "Macro needs micro," Oxford Review of Economic Policy, Oxford University Press, vol. 34(1-2), pages 195-218.
    7. Lorenza Rossi & Emilio Zanetti Chini, 2016. "Firms’ Dynamics and Business Cycle: New Disaggregated Data," DEM Working Papers Series 123, University of Pavia, Department of Economics and Management.
    8. Miguel Casares & Hashmat Khan & Jean-Christophe Poutineau, "undated". "A Structural Analysis of US Entry and Exit Dynamics," Carleton Economic Papers 18-02, Carleton University, Department of Economics.
    9. Francesco Zanetti & Masashige Hamano, 2017. "On Quality and Variety Bias in Aggregate Prices," Economics Series Working Papers 823, University of Oxford, Department of Economics.

    More about this item

    Keywords

    Product heterogeneity; Endogenous product destruction; Business cycles;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • 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
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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