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Entry, Exit, Embodied Technology, and Business Cycles

  • Jeffrey Campbell

    (Department of Economics, University of Rochester, and NBER)

This paper studies the entry and exit of U.S. manufacturing plants over the business cycle and compares the results with those from a vintage capital model augmented to reproduce observed features of the plant life cycle. Looking at the entry and exit of plants provides new evidence supporting the hypothesis that shocks to embodied technological change are a significant source of economic fluctuations. In the U.S. economy, the entry rate covaries positively with output and total factor productivity growth, and the exit rate leads all three of these. A vintage capital model in which all technological progress is embodied in new plants reproduces these patterns. In the model economy, a persistent improvement to embodied technology induces obsolete plants to cease production, causing exit to rise. Later, as entering plants embodying the new technology become operational, both output and productivity increase. (Copyright: Elsevier)

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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 1 (1998)
Issue (Month): 2 (April)
Pages: 371-408

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Handle: RePEc:red:issued:v:1:y:1998:i:2:p:371-408
Note: A technical appendix is available under handle RePEc:red:append:campbell98
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  1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

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