The extensive margin and US aggregate fluctuations: A quantitative assessment

Miguel Casares, H. Khan () and Jean-Christophe Poutineau ()
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H. Khan: University of Ottawa [Ottawa]
Jean-Christophe Poutineau: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique
Authors registered in the RePEc Author Service: Hashmat Khan () and Haider Khan ()

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Abstract: We report empirical evidence indicating that US net business formation has recently turned more volatile, procyclical and persistent. To study these stylized facts, we estimate a DSGE model with endogenous entry and exit. Business units feature heterogeneous productivity and they shut down if the present value of expected future dividends falls below the current liquidation value. The model provides a better fit than a constant exit rate model with the fluctuations of US business formation. The introduction of the extensive margin amplifies the effects of technology and risk-premium shocks, and reduces the procyclicality of firm-level production. The main sources of variability of the US aggregate fluctuations during the Great Recession are countercyclical technology shocks, persistent adverse risk-premium shocks, and expansionary monetary policy shocks.

Keywords: DSGE Models; Entry and exit; Extensive margin; US Business cycles; entry and exit; DSGE models; US business cycles (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-rmg
Note: View the original document on HAL open archive server: https://hal.science/hal-03004552v1
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Citations: View citations in EconPapers (4)

Published in Journal of Economic Dynamics and Control, 2020, 120, pp.103997. ⟨10.1016/j.jedc.2020.103997⟩

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Journal Article: The extensive margin and US aggregate fluctuations: A quantitative assessment (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03004552

DOI: 10.1016/j.jedc.2020.103997

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