Not All Firm Entries Are Made Equal: An Exploratory Note

Abstract

This chapter makes two modest contributions by shedding light on the shock propagating role of endogenous firm entry in a more transparent way through the lens of frictionless, flexible-price real business cycle (RBC) model. We find that entry moderates rather than amplifies the shock, as production no longer occurs in a frictionless way but through business formation that consumes time and resources. We also resurrect the ability of the standard RBC model in resolving “productivity-hours worked puzzle” should credit barrier facing entry be formalized in the model.

Citation

Wong, C.-Y. and Eng, Y.-K. (2019), "Not All Firm Entries Are Made Equal: An Exploratory Note", Advances in Pacific Basin Business, Economics and Finance (Advances in Pacific Basin Business, Economics and Finance, Vol. 7), Emerald Publishing Limited, Bingley, pp. 223-230. https://doi.org/10.1108/S2514-465020190000007010