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Entry Costs and the Macroeconomy

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  • Mr. Thomas Philippon
  • Callum Jones
  • Germán Gutiérrez

Abstract

We combine a structural model with cross-sectional micro data to identify the causes and consequences of rising concentration in the US economy. Using asset prices and industry data, we estimate realized and anticipated shocks that drive entry and concentration. We validate our approach by showing that the model-implied entry shocks correlate with independently constructed measures of entry regulations and M&As. We conclude that entry costs have risen in the U.S. over the past 20 years and have depressed capital and consumption by about seven percent.

Suggested Citation

  • Mr. Thomas Philippon & Callum Jones & Germán Gutiérrez, 2019. "Entry Costs and the Macroeconomy," IMF Working Papers 2019/233, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2019/233
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    Cited by:

    1. Savagar, Anthony, 2021. "Measured productivity with endogenous markups and economic profits," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    2. William L. Gamber, 2021. "Entry, Variable Markups, and Business Cycles," Finance and Economics Discussion Series 2021-077, Board of Governors of the Federal Reserve System (U.S.).
    3. Matias Covarrubias & Germán Gutiérrez & Thomas Philippon, 2019. "From Good to Bad Concentration? US Industries over the Past 30 Years," NBER Chapters, in: NBER Macroeconomics Annual 2019, volume 34, pages 1-46, National Bureau of Economic Research, Inc.
    4. Ufuk Akcigit & Sina Ates, 2019. "What Happened to the U.S. Business Dynamism?," 2019 Meeting Papers 150, Society for Economic Dynamics.
    5. Bighelli, Tommaso & Di Mauro, Filippo & Melitz, Marc J. & Mertens, Matthias, 2021. "European firm concentration and aggregate productivity," IWH Discussion Papers 5/2021, Halle Institute for Economic Research (IWH).
    6. Gutierrez, German & Philippon, Thomas, 2019. "The Failure of Free Entry," CEPR Discussion Papers 14219, C.E.P.R. Discussion Papers.
    7. Guido Ascari & Andrea Colciago & Riccardo Silvestrini, 2021. "Business Dynamism, Sectoral Reallocation and Productivity in a Pandemic," Working Papers 482, University of Milano-Bicocca, Department of Economics, revised Sep 2021.
    8. Savagar, Anthony, 2021. "Measured productivity with endogenous markups and economic profits," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    9. Andrea Colciago & Rajssa Mechelli, 2020. "Competition and Inequality," Working Papers 689, DNB.
    10. Colciago, Andrea & Silvestrini, Riccardo, 2022. "Monetary policy, productivity, and market concentration," European Economic Review, Elsevier, vol. 142(C).
    11. Röhe, Oke & Stähler, Nikolai, 2020. "Demographics and the decline in firm entry: Lessons from a life-cycle model," Discussion Papers 15/2020, Deutsche Bundesbank.
    12. Tetsugen HARUYAMA, 2021. "A Schumpeterian Exploration of Gini and Top/Bottom Income Shares," Discussion Papers 2125, Graduate School of Economics, Kobe University.
    13. Corina Boar & Virgiliu Midrigan, 2020. "Efficient Redistribution," NBER Working Papers 27622, National Bureau of Economic Research, Inc.
    14. Simcha Barkai, 2020. "Declining Labor and Capital Shares," Journal of Finance, American Finance Association, vol. 75(5), pages 2421-2463, October.
    15. Isabel Cairó & Jae W. Sim, 2020. "Market Power, Inequality, and Financial Instability," Finance and Economics Discussion Series 2020-057, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    WP; concentration ratio; fed funds rate; time series; Corporate Investment; Competition; Tobin’s Q; Zero Lower Bound; entry cost shock; monetary policy rule; cost shock; adjustment cost; firm entry; capital adjustment cost; nominal interest rate; exit rate; price choice; entry rate; Consumption; Corporate sector; Stocks; Europe;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E0 - Macroeconomics and Monetary Economics - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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