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Endogenous firm creation and destruction over the business cycle

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  • Masashige Hamano

    (CREA, Université du Luxembourg)

Abstract

This paper revisits Schumpeterian destruction in a DSGE model based on monopolistic competition. Firms enter the market through a free entry condition and exit endogenously depending on their specific productivity level. The mechanism of endogenous destruction among heterogeneous firms is based on the probabilistic argument discussed in Melitz (2003). The models in the paper are successful in reproducing observed business cycle patterns for creation and destruction and other major economic variables. The models also feature typical characteristics of Schumpeterian economies as found in literature.

Suggested Citation

  • Masashige Hamano, 2013. "Endogenous firm creation and destruction over the business cycle," DEM Discussion Paper Series 13-04, Department of Economics at the University of Luxembourg.
  • Handle: RePEc:luc:wpaper:13-04
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    File URL: https://hdl.handle.net/10993/15267
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    More about this item

    Keywords

    entry and exit; firm heterogeneity; the Schumpeterian destruction; business cycles;
    All these keywords.

    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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