News shock, firm dynamics and business cycles: Evidence and theory

Haichao Fan, Xiang Gao, Juanyi Xu and Zhiwei Xu ()

Journal of Economic Dynamics and Control, 2016, vol. 73, issue C, 159-180

Abstract: The literature of expectation-driven business cycles has overlooked the role played by endogenous entry. This paper documents empirically news shock as a major source of fluctuations in firm dynamics and comovement between firm entry and GDP using structural vector auto-regressions. We then develop a tractable dynamic stochastic general equilibrium model to study the propagation mechanism assuming fixed operating costs for incumbents and decreasing survival rates for entrants. Our quantitative prediction closely matches the positive comovement between firm entries and core macroeconomic indicators upon news shock. These results remain robust at the sectoral level when the baseline model is extended to a two-sector setup.

Keywords: Firm dynamics; Endogenous survival rate; Expectation driven business cycles; Sectoral comovements (search for similar items in EconPapers)
JEL-codes: E22 E32 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S016518891630152X
Full text for ScienceDirect subscribers only

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:eee:dyncon:v:73:y:2016:i:c:p:159-180

DOI: 10.1016/j.jedc.2016.09.010

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().