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Can Firm Entry Explain News-Driven Fluctuations?

journal contribution
posted on 2023-05-18, 21:41 authored by Oscar PavlovOscar Pavlov
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.

History

Publication title

Economic Modelling

Volume

52

Pagination

427-434

ISSN

0264-9993

Department/School

TSBE

Publisher

Elsevier Science Bv

Place of publication

Po Box 211, Amsterdam, Netherlands, 1000 Ae

Rights statement

© 2015 Elsevier B.V. All rights reserved.

Repository Status

  • Restricted

Socio-economic Objectives

Macroeconomics not elsewhere classified

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