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Investment and firm dynamics

  • D'Erasmo, Pablo

In this paper I ask whether a model of ¯rm capital accumulation with entry and exit calibrated to match the investment regularities of U.S. establishments is capable of generating the dependence of ¯rm dynamics on size and age. Firms face uncertainty in the form of idiosyncratic productivity shocks and are subject to non-convex capital adjustment costs. I solve for the stationary equilibrium to show that the model can account for the simultaneous dependence of industry dynamics on size (once we condition on age) and on age (once we condition on size).

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File URL: https://mpra.ub.uni-muenchen.de/3598/1/MPRA_paper_3598.pdf
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File URL: https://mpra.ub.uni-muenchen.de/4032/1/MPRA_paper_4032.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3598.

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Date of creation: Mar 2006
Date of revision: Apr 2007
Handle: RePEc:pra:mprapa:3598
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  23. Rui Albuquerque & Hugo A. Hopenhayn, 2004. "Optimal Lending Contracts and Firm Dynamics," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 285-315.
  24. Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities Are Not Valid Measures of Financing Constraints," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 707-712.
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