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Entry and Exit, Product Variety and the Business Cycle

  • Satyajit Chatterjee
  • Russell Cooper

We study the stochastic behavior of a dynamic general equilibrium model with monopolistic competition. Each seller sells his product in the consumption goods as well as the investment goods market and has market power in both. Consumers derive utility from a CES aggregate of all the consumption goods and augment their capital stock by a CES aggregate of all the investment goods. We analyze the equilibrium of this economy allowing for an endogenous determination of the number of firms and therefore of products. The principal effect we highlight is the endogenous propagation and magnification of technology and preference disturbances through product space variations.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4562.

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Date of creation: Dec 1993
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Publication status: published as Satyajit Chatterjee & Russell Cooper, 2014. "Entry And Exit, Product Variety, And The Business Cycle," Economic Inquiry, Western Economic Association International, vol. 52(4), pages 1466-1484, October.
Handle: RePEc:nbr:nberwo:4562
Note: EFG
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  16. Galeotti, Marzion & Schiantarelli, Fabio, 1991. "Variable Markups in a Model with Adjustment Costs: Econometric Evidence for U.S. Industry," Working Papers 91-44, C.V. Starr Center for Applied Economics, New York University.
  17. Beaudry, Paul & Guay, Alain, 1996. "What do interest rates reveal about the functioning of real business cycle models?," Journal of Economic Dynamics and Control, Elsevier, vol. 20(9-10), pages 1661-1682.
  18. Jovanovic, B., 1993. "The Diversification of Production," Working Papers 93-11, C.V. Starr Center for Applied Economics, New York University.
  19. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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