Abstract
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.
| Original language | English |
|---|---|
| Pages (from-to) | 263-279 |
| Number of pages | 17 |
| Journal | Review of Economic Dynamics |
| Volume | 26 |
| DOIs | |
| Publication status | Published - 2017 Oct 1 |
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Keywords
- Business cycles
- Endogenous product destruction
- Product heterogeneity
ASJC Scopus subject areas
- Economics and Econometrics
Cite this
Endogenous product turnover and macroeconomic dynamics. / Hamano, Masashige; Zanetti, Francesco.
In: Review of Economic Dynamics, Vol. 26, 01.10.2017, p. 263-279.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Endogenous product turnover and macroeconomic dynamics
AU - Hamano, Masashige
AU - Zanetti, Francesco
PY - 2017/10/1
Y1 - 2017/10/1
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
UR - http://www.scopus.com/inward/record.url?scp=85026770185&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85026770185&partnerID=8YFLogxK
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 -