Firm Heterogeneity, Endogenous Entry, and the Business Cycle

Gianmarco Ottaviano

No 17433, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates the role that the entry and exit of heterogeneous firms plays in shaping aggregate fluctuations in economic activity. In so doing, it develops a dynamic stochastic general equilibrium model in which procyclical entry and countercyclical exit along a real business cycle lead to endogenous cyclical movements in average firm productivity. These movements stem from a composition effect due to the reallocation of market shares among firms with different levels of efficiency and affect the propagation of exogenous technological shocks. Numerical analysis suggests that existing models with representative firms may overstate the actual role of procyclical entry and exit in imperfectly competitive markets as a propagation mechanism of exogenous technology shocks. The reason is that procyclical entry and countercyclical exit disproportionately involve less efficiency firms whose impact on aggregate economic activity is hampered by their smaller size.

JEL-codes: E20 E32 L11 L16 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-bec, nep-dge, nep-ent, nep-mac and nep-sbm
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published as Gianmarco I. P. Ottaviano, 2012. "Firm Heterogeneity, Endogenous Entry, and the Business Cycle," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 8(1), pages 57 - 86.
Published as Firm Heterogeneity, Endogenous Entry, and the Business Cycle , Gianmarco I. P. Ottaviano. in NBER International Seminar on Macroeconomics 2011 , Frankel and Pissarides. 2012

Downloads: (external link)
http://www.nber.org/papers/w17433.pdf (application/pdf)

Related works:
Journal Article: Firm Heterogeneity, Endogenous Entry, and the Business Cycle (2012)
Chapter: Firm Heterogeneity, Endogenous Entry, and the Business Cycle (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:17433

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w17433

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().