Endogenous Business Cycles with Small and Large Firms

Qazi Haque, Oscar Pavlov and Mark Weder

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Recent decades have seen a rise in the market power of large firms. We propose a theory in which their technology involves the ability to produce multiple products. Large firms interact with smaller competitors and market share reallocations via product creation generate heterogeneous markup dynamics across the firm types. Higher market shares of large firms increase the parameter space for macroeconomic indeterminacy. Bayesian estimation of the general equilibrium model suggests the importance of the endogenous amplification of the product creation channel and animal spirits play a non-trivial role in driving U.S. business cycles.

Keywords: indeterminacy; business cycles; multi-product firms; animal spirits; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2025-04
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https://crawford.anu.edu.au/sites/default/files/20 ... e_Pavlov_Weder_2.pdf

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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2025-20

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