The Cyclical Composition of Startups

Eran Hoffmann
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Eran Hoffmann: Stanford University

No 553, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: This paper proposes a new theory of business cycles based on the idea that financial uncertainty shocks change the nature of innovation. When investors become more risk tolerant, they fund riskier startups with greater growth potential. As these ambitious startups grow, the initial shock propagates and generates a boom in output and employment. I develop a heterogeneous firm industry model of the US business sector with countercyclical risk premia and innovation by startups and existing firms. The quantitative implementation of the model jointly matches time series properties of stock returns and macroeconomic aggregates, as well as micro evidence on firm cohort growth over the cycle.

Date: 2018
New Economics Papers: this item is included in nep-bec, nep-dge, nep-ent, nep-fdg, nep-ino, nep-mac and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:553

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