Returns to scale, firm entry, and the business cycle

Vladimir Smirnyagin

Journal of Monetary Economics, 2023, vol. 134, issue C, 118-134

Abstract: In the U.S. data, aggregate financial conditions play an important role in accounting for the formation of firms with high returns to scale. A version of a firm dynamics model with financial frictions and the ability of potential entrepreneurs to choose their returns to scale can match the data. In the estimated model, financial frictions slow the rate at which businesses with high returns to scale grow disproportionately; this discourages such firms from entering during recessions. The “missing generation” of firms with high returns to scale delays recoveries in the aftermath of economic crises. +

Keywords: Business cycles; Firm dynamics; Financial frictions (search for similar items in EconPapers)
JEL-codes: E22 E32 H25 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:134:y:2023:i:c:p:118-134

DOI: 10.1016/j.jmoneco.2022.12.002

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