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Can Firm Entry Explain News-Driven Fluctuations?


Pavlov, O, Can Firm Entry Explain News-Driven Fluctuations?, Economic Modelling, 52 pp. 427-434. ISSN 0264-9993 (2016) [Refereed Article]

Copyright Statement

2015 Elsevier B.V. All rights reserved.

DOI: doi:10.1016/j.econmod.2015.09.023


Most models subjected to news shocks fail to re-produce the basic aggregate comovement facts. This paper proposes that firm entry can be a channel for the real business cycle model to generate quantitatively realistic expectations-driven fluctuations. Endogenous variation in products supports aggregate comovement in response to contemporaneous shocks and news about future technology. This occurs easily even if, as argued by recent empirical studies, markups are procyclical. The model matches the key second moments of U.S. business cycles. The findings highlight the importance of future work on the implications of news-driven firm entry and its interaction with markups for optimal policy.

Item Details

Item Type:Refereed Article
Keywords:Firm entry; Markups; Expectations-driven business cycles; News shocks; Variety effects
Research Division:Economics
Research Group:Applied economics
Research Field:Applied economics not elsewhere classified
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Macroeconomics not elsewhere classified
UTAS Author:Pavlov, O (Dr Oscar Pavlov)
ID Code:110890
Year Published:2016
Web of Science® Times Cited:2
Deposited By:TSBE
Deposited On:2016-08-22
Last Modified:2018-03-07

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