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Endogenous Firm Entry in an Estimated Model of the U.S. Business Cycle

  • Offick, Sven
  • Winkler, Roland

This paper explores and quantifies the role of endogenous firm entry in amplifying and propagating shocks to the economy. To this end, we estimate two DSGE models on US data with Bayesian methods: one model with endogenous firm entry and translog preferences and one model without. Both models perform equally well in fitting the data but in doing so the endogenous entry model does not rely on a fairly flexible supply of labor. The presence of firm entry amplifies the effects of productivity and wage mark-up shocks, but it dampens those of aggregate demand and investment-specific technology shocks.

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79845.

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Date of creation: 2013
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Handle: RePEc:zbw:vfsc13:79845
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  19. Lewis, Vivien & Stevens, Arnoud, 2015. "Entry and markup dynamics in an estimated business cycle model," European Economic Review, Elsevier, vol. 74(C), pages 14-35.
  20. Devereux, Michael B. & Head, Allen C. & Lapham, Beverly J., 1996. "Aggregate fluctuations with increasing returns to specialization and scale," Journal of Economic Dynamics and Control, Elsevier, vol. 20(4), pages 627-656, April.
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