The Firm Dynamics of Business Cycles

Joao Ayres and Gajendran Raveendranathan

Department of Economics Working Papers from McMaster University

Abstract: We use firm dynamics statistics on employment by age, entry, exit, and job flows to identify sources of business cycle fluctuations in the U.S. economy since 1980. We extend the Hopenhayn (1992) firm dynamics model by incorporating capital and debt accumulation to the firm’s problem and savings to the consumer’s problem. Analyzing the implications of unexpected productivity, credit, labor wedge, and investment wedge shocks for firm dynamics statistics, we show that (a) productivity shock accounts for the 1990-91 and 2001 recessions, and (b) productivity and credit shocks jointly account for the 1980-82 and 2007-09 recessions.

Keywords: firm dynamics; business cycles. (search for similar items in EconPapers)
JEL-codes: D21 D22 E24 E32 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2018-12
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-sbm
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http://socialsciences.mcmaster.ca/econ/rsrch/papers/archive/2018-16.pdf (application/pdf)

Related works:
Working Paper: Firm Exit during Recessions (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2018-16

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