Endogenous Entry, Product Variety, And Business Cycles
- Topics:
- Organization
- Tags:
- Entry,
- Finance,
- Investment,
- University Of Oxford
- Source:
- University of Oxford
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Overview: This paper builds a framework for the analysis of macroeconomic fluctuations that incorporates the endogenous determination of the number of producers over the business cycle. Economic expansions induce higher entry rates by prospective entrants subject to irreversible investment costs. The sluggish response of the number of producers (due to the sunk entry costs) generates a new and potentially important endogenous propagation mechanism for real business cycle models. The stock-market price of investment in the creation of new productive units determines household saving decisions, producer entry, and the allocation of labor across sectors. The model performs at least as well as the traditional setup with respect to the implied second-moment properties of key macroeconomic aggregates.
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Format: PDF | Size: 623KB | Date: Nov 2006 | Pages: 50
