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A DSGE model with endogenous entry and exit

Miguel Casares () and Jean-Christophe Poutineau ()

No 14-06, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: This paper describes a DSGE model where the extensive margin of activity —the number of varieties available for consumption—, depends on micro-founded decisions of entry and exit in the goods market. Both the extended model and a more conventional version have been estimated with US data during the Great Moderation period. Our main ?ndings are two. First, the role of technology shocks for business cycle ?uctuations increases signi?cantly due to the ?ows of entry and exit. Second, the extensive margin of activity explains most of the business cycle reactions to supply-side shocks, whereas the intensive margin (?rm-level output) takes most of the adjustment after demand-side shocks.

Keywords: entry and exit; DSGE models; US business cycles (search for similar items in EconPapers)
JEL-codes: E20 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2014-07
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Published: Carleton Economic Papers

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