Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189254 
Year of Publication: 
1996
Series/Report no.: 
Queen's Economics Department Working Paper No. 935
Publisher: 
Queen's University, Department of Economics, Kingston (Ontario)
Abstract: 
We develop a theoretical model of the dynamics of an industry over the business cycle. In the economy, both aggregate demand and the productivity of a firm's technology evolve stochastically. Each period, firms must choose whether to produce or to exit and attempt to sell off their resources to an entrant, so there is a non-trivial opportunity cost of production. We characterize the intertemporal evolution of the distribution of firms, where are distinguished by their capital in place and the productivity of their technology. We characterize exit rates by age, size and productivity. A useful social planner's characterization of the competitive equilibrium is provided. Predictions of our theoretical model are broadly consistent with observed cyclical patterns.
Subjects: 
stochastic heterogencity
aggregate shocks
social planner
exit
capital in place
thin markets
JEL: 
E32
L16
Document Type: 
Working Paper

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