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Christian-Albrechts-Universität zu Kiel

Institut für Volkswirtschaftslehre - Department of Economics
Economics Working Papers

Economics Working Papers: Abstract 2014-01


Nummer

2014-01

Autoren

Sven Offick, Roland C. Winkler

 

Titel

 

Endogenous Firm Entry in an Estimated Model of the U.S. Business Cycle - A revised version of this paper is available as EWP 2015-06
Abstract A recent theoretical literature highlights the role of endogenous firm entry as an internal amplification mechanism of business cycle fluctuations. The amplification mechanism works through the competition and the variety effect. This paper tests the significance of this amplification mechanism, quantifies its importance, and disentangles the competition and the variety effect. To this end, we estimate a medium-scale real business cycle model with firm entry for the U.S. economy. The parameter governing the competition and variety effect is estimated to be statistically significant. We find that firm entry substantially amplifies output by 8.5 percent. The competition effect accounts for most amplification, whereas the variety effect only plays a minor role.

Keywords: Bayesian Estimation, Business Cycles, Competition Effect, Entry, Mark-ups, Variety Effect

JEL classification: E20, E32

 

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