New Business Start-ups and the Business Cycle

Melvyn Coles and Ali Moghaddasi Kelishomi

No 8588, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper considers new business start-up activity within a stochastic equilibrium model of unemployment. The resulting job creation process is both natural and tractable, and generates equilibrium unemployment and vacancy dynamics which match the volatility and persistence observed in the data. The insight is that the standard Diamond/Mortensen/Pissarides matching framework works beautifully once the free entry of vacancies assumption is replaced by a model of business start-up activity. The approach is particularly important as it is demonstrated that a large part of net job creation in the U.S. economy can be attributed to new business start-ups.

Keywords: Equilibrium unemployment; Startups; Aggregate dynamics (search for similar items in EconPapers)
JEL-codes: E24 E32 J63 J64 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-ent, nep-mac and nep-sbm
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Citations: View citations in EconPapers (10)

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