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Title:Firms' heterogeneity, endogenous entry, and exit decisions PDF Logo
Authors:Totzek, Alexander
Issue Date:2009
Series/Report no.:Economics working paper / Christian-Albrechts-Universität Kiel, Department of Economics 2009,11
Abstract:As GDP is highly correlated with both entering and exiting firms, we develop a totally microfounded DSGE model with endogenous firms entry as well as exit decisions. We show that the simplifying assumption of a constant firms' death rate made by the recent literature on DSGE modelling can lead to counterfactual implications of the resulting dynamics. We further demonstrate that the feature of endogenous exits significantly improves the performance of the resulting model when comparing the generated second moments with those of existing models assuming exogenous exits and with the data. Moreover, we estimate the resulting Phillips curve which turns out to be also a function of the change in the mass of producers using the generalized method of moments.
Subjects:Heterogeneity
Producer entry and exit
Business cycles
GMM
JEL:E32
E31
Document Type:Working Paper
Appears in Collections:Economics Working Papers, Department of Economics, CAU Kiel

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