Slow convergence in economies with firm heterogeneity

Erzo Luttmer

No 696, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: This paper presents a simple formula that relates the tail index of the firm size distribution to the aggregate speed with which an economy converges to its balanced growth path. The fact that there are so many firms in the right tail implies that aggregate shocks that permanently destroy employment among incumbent firms, rather than cause these firms to scale back temporarily, are followed by slow recoveries. This is true despite the existence of many rapidly growing firms.

Date: 2012
New Economics Papers: this item is included in nep-dge and nep-geo
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:696

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