Improper Churn: Social Costs and Macroeconomic Consequences

Ricardo Caballero () and Mohamad L. Hammour

No 6717, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper assembles elements that are essential in forming an integral picture of the way a churning' economy functions and of the disruptions caused by transactional difficulties in labor and financial markets. We couch our analysis in a stochastic equilibrium model anchored with US evidence on gross factor flows and on rents in worker and firm income. We develop a social accounting framework to measure the costs of transactional impediments. We calculate the average social loss associated with structural unemployment and low productivity -- due to technological sclerosis' and a scrambling' of productivity rankings in entry and exit decisions. We also estimate the loss from a recession. An additional forty percent to the traditional unemployment cost is due to reduced productivity and is determined by the recession's cumulative effect on the economy's churn rate. Although a recessionary shock increases the economy's turbulence' at impact, semi-structural VAR evidence from US manufacturing indicates that, cumulatively, it results in a chill' -- which is costly in an economy that suffers from sclerosis.

JEL-codes: E24 E44 (search for similar items in EconPapers)
Date: 1998-09
New Economics Papers: this item is included in nep-ltv and nep-pub
Note: EFG
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Citations: View citations in EconPapers (18)

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Working Paper: Improper Churn: Social Costs and Macroeconomic Consequences (1998)
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