Endogenous Product Turnover and Macroeconomic Dynamic

Francesco Zanetti and Masashige Hamano

No 759, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Abstract This paper introduces endogenous products entry and exit based on creation and destruction of product variety in a general equilibrium model. Recessionary technology shocks induce exit of unprofitable products on impact, allocating resources towards more productive production lines. However, during the recovery phase less productive production lines survive destruction, counteracting the original increase in productivity. The analysis shows that recoveries hinge on lower product destruction rather than higher product creation. Endogenous product destruction is critical to evaluate the effect of permanent policies of entry deregulation and subsidies aimed to stimulate the economy.

Keywords: Firm heterogeneity; endogenous product destruction; business cycles. (search for similar items in EconPapers)
JEL-codes: D24 E23 E32 L11 L60 (search for similar items in EconPapers)
Date: 2015-10-01
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Endogenous Turnover and Macroeconomic Dynamics (2017)
Working Paper: Endogenous firm creation and destruction over the business cycle (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:759

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