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Firm creation, entry costs, and house‐price volatility

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  • Brendan Epstein
  • Alan Finkelstein Shapiro
  • Andrés González Gómez

Abstract

Amid growing work on the link between firm creation and cyclical housing‐market dynamics, we document a significant, positive, and robust cross‐country relationship between the level of new firm creation and the cyclical volatility of house prices. Using a business‐cycle model with endogenous firm entry, housing, and housing‐finance constraints and shocks, we show that, via general equilibrium effects, greater average firm entry can be a powerful amplification mechanism of housing‐finance shocks. These shocks and constraints play a key role in quantitatively rationalizing the link between firm creation and house‐price volatility across countries.

Suggested Citation

  • Brendan Epstein & Alan Finkelstein Shapiro & Andrés González Gómez, 2023. "Firm creation, entry costs, and house‐price volatility," Scandinavian Journal of Economics, Wiley Blackwell, vol. 125(3), pages 688-716, July.
    • Handle: RePEc:bla:scandj:v:125:y:2023:i:3:p:688-716
    DOI: 10.1111/sjoe.12517
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