The extensive margin and US aggregate fluctuations: A quantitative assessment

M. Casares (1) , H. Khan (2) , Jean-Christophe Poutineau (3)

1 UPNA - Universidad Pública de Navarra [Espagne] = Public University of Navarra
2 Carleton University
3 CREM - Centre de recherche en économie et management

We report empirical evidence indicating that US net business formation has recently turned more volatile, procyclical and persistent. To study these stylized facts, we estimate a DSGE model with endogenous entry and exit. Business units feature heterogeneous productivity and they shut down if the present value of expected future dividends falls below the current liquidation value. The model provides a better fit than a constant exit rate model with the fluctuations of US business formation. The introduction of the extensive margin amplifies the effects of technology and risk-premium shocks, and reduces the procyclicality of firm-level production. The main sources of variability of the US aggregate fluctuations during the Great Recession are countercyclical technology shocks, persistent adverse risk-premium shocks, and expansionary monetary policy shocks.

Mots clés: DSGE Models; Entry and exit; Extensive margin; US Business cycles; entry and exit; DSGE models; US business cycles

Domaines: Economies et finances

M. Casares, H. Khan, Jean-Christophe Poutineau. The extensive margin and US aggregate fluctuations: A quantitative assessment. Journal of Economic Dynamics and Control, 2020, 120, pp.103997. ⟨10.1016/j.jedc.2020.103997⟩. ⟨hal-03004552⟩