The Macroeconomic Implications of Firm Selection

Dudley Cooke () and Tatiana Damjanovic ()
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Dudley Cooke: University of Exeter

No 2018_01, Department of Economics Working Papers from Durham University, Department of Economics

Abstract: This paper studies the macroeconomic implications of firm selection in a model with monopolistic competition and translog preferences. Firm selection magnifies the impact of aggregate technology shocks. Magnification is limited by diminishing returns to new varieties and misallocation. We provide analytical results linking selection, diminishing returns, and misallocation with measured total factor productivity (TFP) and the distribution of firm-level productivity. A calibrated version of our model suggests the contribution of firm selection to variations in TFP is over 20 percent.

Keywords: Firm Selection; Translog Preferences; Productivity Distribution (search for similar items in EconPapers)
JEL-codes: E32 L11 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-mac
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Working Paper: The Macroeconomic Implications of Firm Selection (2017)
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