Title: Business cycle evidence on firm entry
Authors: Lewis, Vivien # ×
Issue Date: Nov-2009
Publisher: Cambridge University Press
Series Title: Macroeconomic Dynamics vol:13 issue:5 pages:605-624
Abstract: Business cycle models with sticky prices and endogenous firm entry make novel
predictions on the transmission of shocks through the extensive margin of investment. I
test some of these predictions using a VAR with model-based sign restrictions. I find a
positive and significant response of firm entry to expansionary shocks to productivity,
aggregate spending, monetary policy, and entry costs. The estimated response to a
monetary expansion does not support the monetary policy transmission mechanism
proposed by the model. Insofar as firm startups require labor services, wage stickiness is
needed to make the signs of the model responses consistent with the estimated ones. The
shapes of the empirical responses suggest that congestion effects in entry make it harder
for new firms to survive when the number of startups rises.
ISSN: 1365-1005
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Non-KU Leuven Association publications
× corresponding author
# (joint) last author

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