Endogenous firm entry in an estimated model of the U.S. business cycle

Sven Offick and Roland Winkler ()

No 2015-06, Economics Working Papers from Christian-Albrechts-University of Kiel, Department of Economics

Abstract: A recent theoretical literature highlights the role of endogenous firm entry as an internal amplification mechanism of business cycle fluctuations. The amplification mechanism works through the competition and the variety effect. This paper tests the significance of this amplification mechanism, quantifies its importance, and disentangles the competition and the variety effect. To this end, we estimate a medium-scale real business cycle model with firm entry for the U.S. economy. The competition and the variety effect are estimated to be statistically significant. Together, they amplify the volatility of output by 8.5 percent relative to a model in which both effects are switched off. The competition effect accounts for most amplification, whereas the variety effect only plays a minor role.

Keywords: Bayesian estimation; Business Cycles; Competition Effect; Entry; Mark-ups; Variety Effect (search for similar items in EconPapers)
JEL-codes: E20 E32 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-bec, nep-com, nep-dge, nep-ent, nep-mac and nep-sbm
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https://www.econstor.eu/bitstream/10419/123510/1/841189463.pdf (application/pdf)

Related works:
Journal Article: ENDOGENOUS FIRM ENTRY IN AN ESTIMATED MODEL OF THE U.S. BUSINESS CYCLE (2019)
Working Paper: Endogenous firm entry in an estimated model of the U.S. business cycle (2014)
Working Paper: Endogenous Firm Entry in an Estimated Model of the U.S. Business Cycle (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cauewp:201506

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