Policy Distortions and Aggregate Productivity: The Role of Idiosyncratic Shocks

Jose Da Rocha and Pau Pujolas

The B.E. Journal of Macroeconomics, 2011, vol. 11, issue 1, 36

Abstract: We consider policy distortions in a model where plants face idiosyncratic productivity shocks that evolve following a Brownian motion. Introducing idiosyncratic shocks into the model implies that plants have non-constant operating profits and as a result there is an endogenous exit margin and incumbent plants must decide in each period whether or not to remain in the industry. By using the forward Kolmogorov equation, we analytically characterize the Stationary Equilibrium. Our main contribution is to show that if a model is being calibrated/estimated without idiosyncratic shocks, where plants face constant productivity over time and the exit rate is exogenous to fit data generated from a model with shocks and endogenous entry, TFP distortions will be overestimated.

Keywords: TFP; plant heterogeneity; productivity; policy distortions (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://doi.org/10.2202/1935-1690.2297 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejmac:v:11:y:2011:i:1:n:35

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejm/html

DOI: 10.2202/1935-1690.2297

Access Statistics for this article

The B.E. Journal of Macroeconomics is currently edited by Arpad Abraham and Tiago Cavalcanti

More articles in The B.E. Journal of Macroeconomics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().