Entry, Exit, Embodied Technology, and Business Cycles

36 Pages Posted: 26 Aug 2000  

Jeffrey R. Campbell

Federal Reserve Bank of Chicago; CentER, Tilburg University

Date Written: March 1997

Abstract

This paper studies the entry and exit of U.S. manufacturing plants over the business cycle and compares the results with those from a vintage capital model augmented to reproduce observed features of the plant life cycle. Looking at the entry and exit of plants provides new evidence supporting the hypothesis that shocks to embodied technological change are a significant source of economic fluctuations. In the U.S. economy, the entry rate covaries positively with output and total factor productivity growth, and the exit rate leads all three of these. A vintage capital model in which all technological progress is embodied in new plants reproduces these patterns. In the model economy, a persistent improvement to embodied technology induces obsolete plants to cease production, causing exit to rise. Later, as entering plants embodying the new technology become operational, both output and productivity increase.

Suggested Citation

Campbell, Jeffrey R., Entry, Exit, Embodied Technology, and Business Cycles (March 1997). NBER Working Paper No. w5955. Available at SSRN: https://ssrn.com/abstract=225735

Jeffrey R. Campbell (Contact Author)

Federal Reserve Bank of Chicago ( email )

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HOME PAGE: http://www.jyrc.org

CentER, Tilburg University ( email )

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Tilburg, 5000 LE
Netherlands

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