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Oil price shocks, firm entry and exit in a heterogeneous firm model

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  • Soma Patra
Abstract
Oil price shocks are considered to be one of the important factors behind US recessions, yet little is known about the transmission channels of oil price shocks. What complicates the matter further is the small share of oil in production. To address the issue the literature has incorporated amplifying channels such as endogenous depreciation or variable markups. I build a DSGE model with heterogeneous firms and show that inclusion of firm entry and exit amplifies the effect of oil price shocks. Using US firm‐level data, I see that oil shocks are negatively correlated with firm entry and positively correlated with firm exit as predicted by the model. Further, the DSGE model suggests it is the bigger and more‐productive firms that survive after an oil price shock. Chocs pétroliers et entrées et sorties du marché dans un modèle d'entreprises hétérogènes. On estime que les chocs pétroliers font partie des principaux facteurs à l'origine des récessions aux États‐Unis. Pourtant, on ne sait que peu de choses sur leurs canaux de transmission. La problématique se complique davantage si l'on considère la faible part du pétrole dans la production. Pour résoudre cette question, la littérature a intégré des canaux d'amplification, notamment des dépréciations endogènes ou des taux de marge variables. Dans cet article nous développons un modèle d'équilibre général dynamique stochastique avec entreprises hétérogènes pour montrer que la prise en compte des entrées et sorties d'entreprises amplifie l'effet des chocs pétroliers. Grâce à des données d'entreprises américaines, nous observons qu'en matière de chocs pétroliers, la corrélation est négative avec les entrées d'entreprises sur le marché mais positive avec les sorties, tel que prévu par le modèle. En outre, le modèle d'équilibre général dynamique stochastique suggère que les entreprises plus grandes et plus productives ont davantage tendance à survivre à un choc pétrolier.

Suggested Citation

  • Soma Patra, 2022. "Oil price shocks, firm entry and exit in a heterogeneous firm model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(1), pages 349-378, February.
    • Handle: RePEc:wly:canjec:v:55:y:2022:i:1:p:349-378
    DOI: 10.1111/caje.12581
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    References listed on IDEAS

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