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Macroeconomic fluctuations and firm entry : theory and evidence

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  • Vivien Lewis

    () (Center for Economic Studies, Catholic University Leuven)

Abstract

This paper studies the behaviour of firm entry and exit in response to macroeconomic shocks. We formulate a dynamic stochastic general equilibrium model with an endogenous number of producers. From the calibrated model, we derive a minimum set of robust sign restrictions to identify four kinds of macroeconomic shocks in a vector autoregression, namely supply, demand, monetary and entry cost shocks. The variables entering the VAR are output, inflation, the nominal interest rate, profits and firm entry. The response of firm entry to the various shocks is freely estimated. Our main finding is that entry responds significantly to all types of shocks. The results also show a crowding-in of firm entry following an exogenous rise in demand, consistent with the effect of a consumption preference shock predicted by the model

Suggested Citation

  • Vivien Lewis, 2006. "Macroeconomic fluctuations and firm entry : theory and evidence," Working Paper Research 103, National Bank of Belgium.
  • Handle: RePEc:nbb:reswpp:200610-13
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    References listed on IDEAS

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    Cited by:

    1. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2008. "Monetary Policy and Business Cycles with Endogenous Entry and Product Variety," NBER Chapters,in: NBER Macroeconomics Annual 2007, Volume 22, pages 299-353 National Bureau of Economic Research, Inc.
    2. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2012. "Endogenous Entry, Product Variety, and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 304-345.
    3. Lenno UUSKÜLA, "undated". "Limited Participation or Sticky Prices? New Evidence from Firm Entry and Failures," EcoMod2008 23800147, EcoMod.
    4. Cacciatore, Matteo & Ghironi, Fabio & Stebunovs, Viktors, 2015. "The domestic and international effects of interstate U.S. banking," Journal of International Economics, Elsevier, vol. 95(2), pages 171-187.
    5. Cavallari, Lilia, 2010. "Exports and foreign direct investments in an endogenous-entry model with real and nominal uncertainty," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 300-313, March.
    6. Martina Cecioni, 2010. "Firm entry, competitive pressures and the US inflation dynamics," Temi di discussione (Economic working papers) 773, Bank of Italy, Economic Research and International Relations Area.
    7. Lenno Uuskula, 2007. "Firm entry and liquidity," Bank of Estonia Working Papers 2007-06, Bank of Estonia, revised 26 Aug 2007.
    8. Bergin, Paul R. & Corsetti, Giancarlo, 2008. "The extensive margin and monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1222-1237, October.
    9. Gil, Pedro Mazeda, 2010. "Stylised facts and other empirical evidence on firm dynamics, business cycle and growth," Research in Economics, Elsevier, vol. 64(2), pages 73-80, June.
    10. Lenno Uuskula, 2008. "Liquidity and productivity shocks: A look at sectoral firm creation," Bank of Estonia Working Papers 2008-05, Bank of Estonia, revised 30 Oct 2008.
    11. Viktors Stebunovs & Fabio Ghironi, 2008. "The Domestic and International Effects of Financial Deregulation," 2008 Meeting Papers 676, Society for Economic Dynamics.

    More about this item

    Keywords

    firm entry; VAR; business cycles;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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