Entry and Exit, Product Variety, and the Business Cycle

19 Pages Posted: 23 Aug 2014

See all articles by Satyajit Chatterjee

Satyajit Chatterjee

Federal Reserve Bank of Philadelphia

Russell Cooper

University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2014

Abstract

We study the stochastic behavior of a dynamic general equilibrium model with monopolistic competition. Each seller sells his product in the consumption goods as well as the investment goods market and has market power in both. Consumers derive utility from a constant elasticity of substitution (CES) aggregate of all the consumption goods and augment their capital stock by a CES aggregate of all the investment goods. We analyze the equilibrium of this economy allowing for an endogenous determination of the number of firms and therefore of products. The principal effect we wish to highlight is the endogenous propagation and magnification of technology and preference disturbances through product space variations.

Suggested Citation

Chatterjee, Satyajit and Cooper, Russell W., Entry and Exit, Product Variety, and the Business Cycle (October 2014). Economic Inquiry, Vol. 52, Issue 4, pp. 1466-1484, 2014. Available at SSRN: https://ssrn.com/abstract=2485631 or http://dx.doi.org/10.1111/ecin.12091

Satyajit Chatterjee (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

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Russell W. Cooper

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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