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Endogenous Business Cycles with Small and Large Firms

Author

Listed:
  • Qazi Haque
  • Oscar Pavlov
  • Mark Weder

Abstract

Recent decades have seen a rise in the market power of large firms. We propose a theory in which their technology involves the ability to produce multiple products. Large firms interact with smaller competitors and market share reallocations via product creation generate heterogeneous markup dynamics across the firm types. Higher market shares of large firms increase the parameter space for macroeconomic indeterminacy. Bayesian estimation of the general equilibrium model suggests the importance of the endogenous amplification of the product creation channel and animal spirits play a non-trivial role in driving U.S. business cycles.

Suggested Citation

  • Qazi Haque & Oscar Pavlov & Mark Weder, 2025. "Endogenous Business Cycles with Small and Large Firms," CAMA Working Papers 2025-20, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2025-20
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-04/20_2025_Haque_Pavlov_Weder_0.pdf
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    More about this item

    Keywords

    indeterminacy; business cycles; multi-product firms; animal spirits; Bayesian estimation;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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