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The extensive margin and US aggregate fluctuations: A quantitative assessment

Author

Listed:
  • M. Casares

    (UPNA - Universidad Pública de Navarra [Espagne] = Public University of Navarra)

  • H. Khan

    (Carleton University)

  • Jean-Christophe Poutineau

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

We report empirical evidence indicating that US net business formation has recently turned more volatile, procyclical and persistent. To study these stylized facts, we estimate a DSGE model with endogenous entry and exit. Business units feature heterogeneous productivity and they shut down if the present value of expected future dividends falls below the current liquidation value. The model provides a better fit than a constant exit rate model with the fluctuations of US business formation. The introduction of the extensive margin amplifies the effects of technology and risk-premium shocks, and reduces the procyclicality of firm-level production. The main sources of variability of the US aggregate fluctuations during the Great Recession are countercyclical technology shocks, persistent adverse risk-premium shocks, and expansionary monetary policy shocks.

Suggested Citation

  • M. Casares & H. Khan & Jean-Christophe Poutineau, 2020. "The extensive margin and US aggregate fluctuations: A quantitative assessment," Post-Print hal-03004552, HAL.
  • Handle: RePEc:hal:journl:hal-03004552
    DOI: 10.1016/j.jedc.2020.103997
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-03004552
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    More about this item

    Keywords

    DSGE Models; Entry and exit; Extensive margin; US Business cycles; entry and exit; DSGE models; US business cycles;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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