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Industry Dynamics over the Business Cycles

Author

Listed:
  • James Bergin
  • Dan Bernhardt Bernhardt

Abstract

We develop a theoretical model of the dynamics of an industry over the business cycle. In the economy, both aggregate demand and the productivity of a firm's technology evolve stochastically. Each period, firms must choose whether to produce or to exit and attempt to sell off their resources to an entrant, so there is a non-trivial opportunity cost of production. We characterize the intertemporal evolution of the distribution of firms, where are distinguished by their capital in place and the productivity of their technology. We characterize exit rates by age, size and productivity. A useful social planner's characterization of the competitive equilibrium is provided. Predictions of our theoretical model are broadly consistent with observed cyclical patterns.

Suggested Citation

  • James Bergin & Dan Bernhardt Bernhardt, 1996. "Industry Dynamics over the Business Cycles," Working Papers 935, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:935
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_935.pdf
    File Function: First version 1996
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    Cited by:

    1. Jeffrey R. Campbell & Beverly Lapham, 2004. "Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U. S.-Canada Border," American Economic Review, American Economic Association, vol. 94(4), pages 1194-1206, September.
    2. repec:eee:labchp:v:3:y:1999:i:pb:p:2711-2805 is not listed on IDEAS

    More about this item

    Keywords

    stochastic heterogencity; aggregate shocks; social planner; exit; capital in place; thin markets;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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