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Endogenous Product Turnover and Macroeconomic Dynamic

Author

Listed:
  • Francesco Zanetti
  • Masashige Hamano
Abstract
This paper introduces endogenous products entry and exit based on creation and destruction of product variety in a general equilibrium model. Recessionary technology shocks induce exit of unprofitable products on impact, allocating resources towards more productive production lines. However, during the recovery phase less productive production lines survive destruction, counteracting the original increase in productivity. The analysis shows that recoveries hinge on lower product destruction rather than higher product creation. Endogenous product destruction is critical to evaluate the effect of permanent policies of entry deregulation and subsidies aimed to stimulate the economy.

Suggested Citation

  • Francesco Zanetti & Masashige Hamano, 2015. "Endogenous Product Turnover and Macroeconomic Dynamic," Economics Series Working Papers 759, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:759
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    References listed on IDEAS

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    More about this item

    Keywords

    Firm heterogeneity; endogenous product destruction; business cycles.;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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