Pavlov, O, Can Firm Entry Explain News-Driven Fluctuations?, Economic Modelling, 52 pp. 427-434. ISSN 0264-9993 (2016) [Refereed Article]
© 2015 Elsevier B.V. All rights reserved.
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 Type:||Refereed Article|
|Keywords:||Firm entry; Markups; Expectations-driven business cycles; News shocks; Variety effects|
|Research Group:||Applied Economics|
|Research Field:||Applied Economics not elsewhere classified|
|Objective Division:||Economic Framework|
|Objective Field:||Macroeconomics not elsewhere classified|
|UTAS Author:||Pavlov, O (Dr Oscar Pavlov)|
|Web of Science® Times Cited:||1|
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