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Multi-product Firms and Business Cycle Dynamics

Minniti, Antonio ; Turino , Francesco (2012) Multi-product Firms and Business Cycle Dynamics. [Preprint]

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Recent empirical evidence provided by Bernard et al. (2010) and Broda and Weinstein (2010) shows that a significant share of product creation and destruction in U.S. industries occurs within existing firms and accounts for a significant share of aggregate output. In the present paper, and consistent with this evidence, we relax the standard assumption of mono-product firms that is typically made in dynamic general equilibrium (DSGE) models. We develop a DSGE model with multi-product firms and endogenous markups to assess the implica- tions of the intra-firm extensive margin on business cycle fluctuations. In this environment, the procyclicality of product creation emerges as a consequence of firms’ strategic interactions. Due to the proliferation effect in- duced by firm-level adjustments in product scope, we show that our model embodies a quantitatively important magnification mechanism of aggregate shocks.

Document type:Preprint
Subjects:Area 13 - Scienze economiche e statistiche > SECS-P/01 Economia politica
Depositato da:Antonio Minniti
Depositato il:26 Apr 2012 14:26
Last modified:11 May 2012 12:52

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