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PRODUCTIVITY AND FIRM DYNAMICS OVER THE BUSINESS CYCLE PANDEMIC

Abraham Assefa, Darya Lapitskaya and Lenno Uusküla

No 141, University of Tartu - Faculty of Economics and Business Administration Working Paper Series from Faculty of Economics and Business Administration, University of Tartu (Estonia)

Abstract: The paper studies the effects of technology shocks on the creation and destruction of firms. Using US data and a VAR model the paper finds Schumpeterian creative destruction for investment-specific technology shocks. A positive investment-specific technology shock increases the number of firms opening, but also leads to a higher number of firms closing. In contrast, labour-neutral technology shocks also benefit old firms. An increase in overall productivity leads to an increase in the number of new firms and a drop in the number of failures. Both margins contribute to an increase in the number of firms in the economy. A medium-scale DSGE model with endogenous entry and exit that is that is augmented with additional features is able to capture these stylised facts.

Keywords: VAR; DSGE; Firm dynamics; Productivity; Firm turnover; Technology shocks; Investment specific technology shocks (search for similar items in EconPapers)
Pages: 44 pages
Date: 2022
New Economics Papers: this item is included in nep-bec, nep-dge, nep-eff, nep-ent, nep-mac, nep-sbm and nep-tid
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