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Entry and Exit, Unemployment, and the Business Cycle

Joshua Bernstein (), Alexander Richter () and Nathaniel Throckmorton

No 2018, Working Papers from Federal Reserve Bank of Dallas

Abstract: Establishment entry and exit is strongly correlated with output and unemployment. This paper examines how these linkages affect business cycle dynamics through the lens of a search and matching model augmented to include multi-worker establishments that endogenously enter and exit. Analytical results show cyclical entry and exit cause reallocation of inputs that amplifies and skews business cycle dynamics. When the model is calibrated to the data, it generates realistic asymmetry in output and unemployment, data-consistent counter-cyclical endogenous uncertainty and a 55% higher welfare cost than the model without entry and exit.

Keywords: Unemployment; Firm Dynamics; Nonlinear; Skewness; Tail Risk; Uncertainty (search for similar items in EconPapers)
JEL-codes: E24 E32 E37 J63 L11 (search for similar items in EconPapers)
Pages: 41
Date: 2020-06-24, Revised 2021-01-12
New Economics Papers: this item is included in nep-bec, nep-dge, nep-lab, nep-mac and nep-ore
Note: Previous version of this paper circulated under the title "Entry and Exit, Unemployment, and Macroeconomic Tail Risk."
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DOI: 10.24149/wp2018r1

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