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Working Paper
Last-in first-out oligopoly dynamics
This paper extends the static analysis of oligopoly structure into an infinite- horizon setting with sunk costs and demand uncertainty. The observation that exit rates decline with firm age motivates the assumption of last-in first- out dynamics: An entrant expects to produce no longer than any incumbent. This selects an essentially unique Markov-perfect equilibrium. With mild restrictions on the demand shocks, a sequence of thresholds describes firms? equilibrium entry and survival decisions. Bresnahan and Reiss?s (1993) empirical analysis of oligopolists? entry and exit assumes that such ...
Working Paper
Very Simple Markov-Perfect Industry Dynamics: Empirics
This paper develops an econometric model of firm entry, competition, and exit in oligopolistic markets. The model has an essentially unique symmetric Markov-perfect equilibrium, which can be computed very quickly. We show that its primitives are identified from market-level data on the number of active firms and demand shifters, and we implement a nested fixed point procedure for its estimation. Estimates from County Business Patterns data on U.S. local cinema markets point to tough local competition. Sunk costs make the industry's transition following a permanent demand shock last 10 to 15 ...
Journal Article
Interest rates following financial re-regulation
This article uses a calibrated general-equilibrium model of lending from the wealthy to the middle class to evaluate the effects of tightening household lending standards. The authors simulate a rise in down payment and amortization rates from their average values in the late 1990s and early 2000s to levels more typical of the era before the financial deregulation of the early 1980s. Their results show a drop in loan demand. This substantially lowers interest rates for an extended period. Counterintuitively, tightening lending standards makes borrowers better off.
Journal Article
Odyssean Forward Guidance in Monetary Policy: A Primer
This article shows how central bank forward guidance can improve macroeconomic outcomes by altering current expectations of future inflation and output.
Working Paper
The Chicago Fed DSGE model
The Chicago Fed dynamic stochastic general equilibrium (DSGE) model is used for policy analysis and forecasting at the Federal Reserve Bank of Chicago. This article describes its specification and estimation, its dynamic characteristics and how it is used to forecast the US economy. In many respects the model resembles other medium scale New Keynesian frameworks, but there are several features which distinguish it: the monetary policy rule includes forward guidance, productivity is driven by neutral and investment specific technical change, multiple price indices identify inflation and there ...
Working Paper
A structural empirical model of firm growth, learning, and survival
In this paper we develop an empirical model of entrepreneurs' business continuation decisions, and we estimate its parameters using a new panel of monthly alcohol tax returns from bars in the state of Texas. In our data, entrepreneurial failure is frequent and predictable. In the first year of life, 20% of our sample's bars exit, and these tend to be smaller than average. In the model, an entrepreneur bases her business continuation decision on potentially noisy signals of her bar's future profits. The presence of noise implies that she should make her decision based on both current and past ...
Working Paper
Real exchange rate fluctuations and the dynamics of retail trade industries on the U.S.-Canada border
Consumers living near the U.S.-Canada border can shift their expenditures between the two countries, so real exchange rate fluctuations can act as demand shocks to border areas' retailers. Using annual county-level data, we estimate the effects of real exchange rates on the number of establishments and their average employment in border counties for four retail industries. In three of the four industries we consider, the number of operating establishments responds either contemporaneously or with a lag of one year, so long-run changes in net entry in fact occur quickly enough to matter for ...
Working Paper
Technical change, diffusion, and productivity
Working Paper
Aggregate employment fluctuations with microeconomic asymmetries
We provide a simple explanation for the observation that the variance of job destruction is greater than the variance of job creation. In our model profit maximization in the presence of proportional plant-level costs of job creation and destruction implies that shrinking plants are more sensitive than growing plants to aggregate shocks. We describe circumstances in which this microeconomic asymmetry is preserved in the aggregate and show that it can account for asymmetries in the variability of job creation and destruction of the kind observed in the U.S. manufacturing sector. This is so ...