Entry costs and the dynamics of business formation

Cavallari, Lilia

doi:10.1016/j.jmacro.2015.03.002

Cited by 15 publications

(13 citation statements)

References 39 publications

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“…20 Investments and entry variables behave similarly in the data (Chatterjee and Cooper 1993). For a recent assessment of the cyclical properties of business formation, see Cavallari (2015). 21 Backus et al (1992) find cross-correlations of output and consumption between US and Europe, respectively, 0.66 and 0.51.…”

Section: Second Momentsmentioning

confidence: 79%

External Shocks, Trade Margins, and Macroeconomic Dynamics

d’Addona

Cavallari

2020

Economies

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This paper studies the role of the exchange rate regime for trade of new products. It first provides VAR evidence that a rise in external productivity shifts trade away from new products and more so in fixed regimes. Then, it presents a model with firm dynamics in line with this evidence. We argue that exchange rate policy can affect firms’ entry decisions with consequences for the competitiveness of a country’s exports well beyond the short run. In our setup, fixed exchange rates can foster the competitiveness of firms that trade new products, while flexible rates favor firms that produce mature products.

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Section: Second Momentsmentioning

confidence: 79%

External Shocks, Trade Margins, and Macroeconomic Dynamics

d’Addona

Cavallari

2020

Economies

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“…Remarkably, while the entry of new firms (or new varieties of consumption goods) has been widely considered in DSGE models, few papers have proposed an analysis of firm exit. 3 Recently, Chugh and Cavallari (2015) , Cavallari (2015) , Hamano and Zanetti (2017 , 2020 ), and Rossi (2019) have proposed endogenous exit of firms motivated by reasons different than ours. 4 These attempts, however, turn out to be not satisfactory in addressing the stylized facts in the post-2008 financial crisis period.…”

Section: Introductionmentioning

confidence: 78%

“…Following Bilbiie et al. (2012) , Cavallari (2015) , Lewis and Stevens (2015) , and Rossi (2019) , the free-entry decision is primarily based on the comparison between the prospective equity value and the cost of entry. Unlike these papers, however, the cost of entry is not obtained here from the marginal cost of production or from any specific production function.…”

Section: A Dsge Model With Endogenous Entry and Exitmentioning

confidence: 99%

“…This feature makes the exit decision intratemporal . In another recent paper, Cavallari (2015) considers scrap values, which are time-invariant and firm specific, in the exit decision. Rossi (2019) assumes that the liquidation value is zero.…”

Section: Introductionmentioning

confidence: 99%

“… 12 The model incorporates sticky prices a la Calvo (1983) instead of the Rotemberg (1982) ’s price adjustment costs traditionally adopted in other papers with extensive margin. Cavallari (2015) also assumes Calvo (1983) -type price rigidity, however, in a calibrated model. …”

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confidence: 99%

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The extensive margin and US aggregate fluctuations: A quantitative assessment

Casares

Khan

Poutineau

2020

Journal of Economic Dynamics and Control

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We report empirical evidence indicating that US net business formation has recently turned more volatile, procyclical and persistent. To study these stylized facts, we estimate a DSGE model with endogenous entry and exit. Business units feature heterogeneous productivity and they shut down if the present value of expected future dividends falls below the current liquidation value. The model provides a better fit than a constant exit rate model with the fluctuations of US business formation. The introduction of the extensive margin amplifies the effects of technology and risk-premium shocks, and reduces the procyclicality of firm-level production. The main sources of variability of the US aggregate fluctuations during the Great Recession are countercyclical technology shocks, persistent adverse risk-premium shocks, and expansionary monetary policy shocks.

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The overshooting of firms’ destruction, banks and productivity shocks

Rossi

2019

European Economic Review

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Using U.S. quarterly data we show that in response to a positive productivity shock: i) …rms'creation increases ii) …rms'destruction reduces at impact, it then overshoots its long run level, peaking three years later above its steady state. iii) banks' markup reduces. To address these three facts, we provide an NK-DSGE model where …rms dynamics is endogenous, the banking sector is monopolistic competitive and defaulting …rms do not repay loans to banks. We show that the interaction between …rms and banks is key to replicate the empirical evidence. Contrary to the conventional wisdom, in the baseline model the e¤ects of the shock are dampened with respect to a model without banks.

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Entry costs and the dynamics of business formation

Cited by 15 publications

References 39 publications

External Shocks, Trade Margins, and Macroeconomic Dynamics

External Shocks, Trade Margins, and Macroeconomic Dynamics

The extensive margin and US aggregate fluctuations: A quantitative assessment

The overshooting of firms’ destruction, banks and productivity shocks

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