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Selection, Reallocation and the Shape of Aggregate Fluctuations: A General Equilibrium Analysis

Author

Listed:
  • Julia K. Thomas

    (Ohio State Univ.)

  • Dino Palazzo

    (Boston University)

  • Aubhik Khan

    (Ohio State Univ.)

  • Gian Luca Clementi

    (Stern School, New York Univ.)

Abstract

The model we explore is in the spirit of Hopenhayn (1992) and, more directly, an extension of Clementi and Palazzo (2010). Our interest here is to better understand how selection reshapes the dynamics of macro aggregates in a general equilibrium setting with realistic firm-level investment patterns and life-cycle dynamics. More specifically, in an analysis disciplined by long-run observations on both aggregate and firm-level variables, we examine the extent to which procyclical entry and countercyclical exit lead to amplification, greater propagation and nonlinearities in the movements of aggregate production, employment and investment.

Suggested Citation

  • Julia K. Thomas & Dino Palazzo & Aubhik Khan & Gian Luca Clementi, 2011. "Selection, Reallocation and the Shape of Aggregate Fluctuations: A General Equilibrium Analysis," 2011 Meeting Papers 1364, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:1364
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    References listed on IDEAS

    as
    1. Paul Gomme & B. Ravikumar & Peter Rupert, 2011. "The Return to Capital and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 262-278, April.
    2. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    3. Diego A. Comin & Thomas Philippon, 2006. "The Rise in Firm-Level Volatility: Causes and Consequences," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 167-228, National Bureau of Economic Research, Inc.
    4. Khan, Aubhik & Thomas, Julia K., 2003. "Nonconvex factor adjustments in equilibrium business cycle models: do nonlinearities matter?," Journal of Monetary Economics, Elsevier, vol. 50(2), pages 331-360, March.
    5. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-674, August.
    6. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
    7. Aubhik Khan & Julia K. Thomas, 2008. "Idiosyncratic Shocks and the Role of Nonconvexities in Plant and Aggregate Investment Dynamics," Econometrica, Econometric Society, vol. 76(2), pages 395-436, March.
    8. Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 819-863.
    9. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
    10. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
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    Cited by:

    1. David Berger, 2012. "Countercyclical Restructuring and Jobless Recoveries," 2012 Meeting Papers 1179, Society for Economic Dynamics.

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