Alessandro Ferrari (University of Zuerich), 19.10.2022
We study how firm heterogeneity and market power affect macroeconomic fragility, defined as the probability
of long-lasting recessions. We propose a theory in which the positive interaction between firm entry,
competition and factor supply can give rise to multiple steady states. We show that when firm heterogeneity is
large, even small temporary shocks can trigger firm exit and make the economy spiral in a competition-driven
poverty trap. Calibrating our model to incorporate the well-documented trends in increasing firm
heterogeneity in the US economy, we find that, relative to 2007, an economy with the 1990 level of firm
heterogeneity is 1.5 to 2 times less likely to experience a deep recession.
of long-lasting recessions. We propose a theory in which the positive interaction between firm entry,
competition and factor supply can give rise to multiple steady states. We show that when firm heterogeneity is
large, even small temporary shocks can trigger firm exit and make the economy spiral in a competition-driven
poverty trap. Calibrating our model to incorporate the well-documented trends in increasing firm
heterogeneity in the US economy, we find that, relative to 2007, an economy with the 1990 level of firm
heterogeneity is 1.5 to 2 times less likely to experience a deep recession.
Time
Wednesday, 19.10.22 - 12:15 PM
- 01:30 PM
Topic
“Firm Heterogeneity, Market Power and Macroeconomic Fragility”
Location
Juridicum, Adenauerallee 24-42
Room
Faculty Room
Reservation
not required
Organizer
Institute for Macroeconomics and Econometrics
Contact