TY  - JOUR
AU  - Ottaviano, Gianmarco I.P.
TI  - Firm Heterogeneity, Endogenous Entry, and the Business Cycle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17433
PY  - 2011
Y2  - September 2011
DO  - 10.3386/w17433
UR  - http://www.nber.org/papers/w17433
L1  - http://www.nber.org/papers/w17433.pdf
N1  - Author contact info:
Gianmarco Ottaviano
Department of Economics
Bocconi University
Via Roentgen 1
20136 Milan
Italy
E-Mail: gianmarco.ottaviano@unibocconi.it
M1  - published as Gianmarco I. P. Ottaviano. "Firm Heterogeneity, Endogenous Entry, and the Business Cycle," in Jeffrey Frankel and Christopher Pissarides, organizers, "NBER International Seminar on Macroeconomics 2011" University of Chicago Press (2012)

M3  - presented at "ISOM", June 17-18, 2011
AB  - 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.
ER  -