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The Macroeconomic Implications of Firm Selection

Author

Listed:
  • Dudley Cooke

    (University of Exeter)

  • Tatiana Damjanovic

    (Durham Business School)

Abstract

This paper studies the macroeconomic implications of firm selection in a model with monopolistic competition and translog preferences. Firm selection magnifies the impact of aggregate technology shocks. Magnification is limited by diminishing returns to new varieties and misallocation. We provide analytical results linking selection, diminishing returns, and misallocation with measured total factor productivity (TFP) and the distribution of firm-level productivity. A calibrated version of our model suggests the contribution of firm selection to variations in TFP is over 20 percent.

Suggested Citation

  • Dudley Cooke & Tatiana Damjanovic, 2018. "The Macroeconomic Implications of Firm Selection," Department of Economics Working Papers 2018_01, Durham University, Department of Economics.
    • Handle: RePEc:dur:durham:2018_01
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    References listed on IDEAS

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    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

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