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Endogenous Turnover and Macroeconomic Dynamics

Author Info

Listed author(s):
  • 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)

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File URL: http://dx.doi.org/10.1016/j.red.2017.06.003
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 26 (2017)
Issue (Month): (October)
Pages: 263-279

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Handle: RePEc:red:issued:15-258
DOI: 10.1016/j.red.2017.06.003
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Keywords: Product heterogeneity; Endogenous product destruction; Business cycles;

Other versions of this item:

Find related papers by 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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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. 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.
  3. Lorenza Rossi & Emilio Zanetti Chini, 2017. "Firms' Dynamics and Business Cycle: New Disaggregated Data," DEM Working Papers Series 141, University of Pavia, Department of Economics and Management.
  4. Francesco Zanetti & Masashige Hamano, 2017. "On Quality and Variety Bias in Aggregate Prices," Economics Series Working Papers 823, University of Oxford, Department of Economics.
  5. 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.

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