TY - JOUR
T1 - Endogenous product turnover and macroeconomic dynamics
AU - Hamano, Masashige
AU - Zanetti, Francesco
N1 - Funding Information:
We would like to thank the Coordinating Editor (Matthias Doepke), an anonymous Associate Editor, two anonymous referees, Almut Balleer, Andrea Colciago, Andreas Irmen, Philippe Martin, Pierre M. Picard and Jacques-Francois Thisse for providing comments and discussions. We thank seminar participants at the 10th joint CEPR/ECB Labour Market Workshop, the University of Luxembourg, the University of Oxford, the EEA/ESEM meetings, the Midwest Macroeconomics meetings, the Annual Conference of the Royal Economic Society and the 2016 Asian Meeting of the Econometric Society for suggestions. The present project was partially supported by the National Research Fund, Luxembourg, the Marie Curie Actions of the European Commission (FP7-COFUND), the Zengin Foundation, the Grant-in-Aid for Young Scientists B (JSPS 15K17027) and the John Fell Oxford University Press Research Fund. All remaining errors are our own.
Publisher Copyright:
© 2017 Elsevier Inc.
PY - 2017/10
Y1 - 2017/10
N2 - This paper introduces endogenous product entry and exit based on creation and destruction of product variety in a general equilibrium model. Recessionary technology shocks induce exit of unprofitable products on impact, allocating resources towards more productive production lines. However, during the recovery phase, less productive production lines survive destruction, counteracting the original increase in productivity. The analysis shows that recoveries hinge on lower product destruction rather than higher product creation. We find that product heterogeneity and the persistence of technology shocks play a critical role for the cyclicality of product turnover. Endogenous product destruction is important to evaluate the effect of permanent policies of entry deregulation and subsidies aimed to stimulate the economy.
AB - This paper introduces endogenous product entry and exit based on creation and destruction of product variety in a general equilibrium model. Recessionary technology shocks induce exit of unprofitable products on impact, allocating resources towards more productive production lines. However, during the recovery phase, less productive production lines survive destruction, counteracting the original increase in productivity. The analysis shows that recoveries hinge on lower product destruction rather than higher product creation. We find that product heterogeneity and the persistence of technology shocks play a critical role for the cyclicality of product turnover. Endogenous product destruction is important to evaluate the effect of permanent policies of entry deregulation and subsidies aimed to stimulate the economy.
KW - Business cycles
KW - Endogenous product destruction
KW - Product heterogeneity
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U2 - 10.1016/j.red.2017.06.003
DO - 10.1016/j.red.2017.06.003
M3 - Article
AN - SCOPUS:85026770185
VL - 26
SP - 263
EP - 279
JO - Review of Economic Dynamics
JF - Review of Economic Dynamics
SN - 1094-2025
ER -