Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/90813
Authors: 
Offick, Sven
Winkler, Roland C.
Year of Publication: 
2014
Series/Report no.: 
Economics Working Paper, Christian-Albrechts-Universität Kiel, Department of Economics 2014-01
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.
Subjects: 
Bayesian estimation
Business Cycles
Competition Effect
Entry
Mark-ups
Variety Effect
JEL: 
E20
E32
Document Type: 
Working Paper

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