The Macroeconomic Implications of Firm Selection

Cooke, Dudley; Damjanovic, Tatiana

Abstract

This paper studies the macroeconomic implications of firm selection in a model with monopolistic competition and translog preferences. Firm selection magnifies the impact of aggregate technology shocks. Magnification is limited by diminishing returns to new varieties and misallocation. We provide analytical results linking selection, diminishing returns, and misallocation with measured total factor productivity (TFP) and the distribution of firm-level productivity. A calibrated version of our model suggests the contribution of firm selection to variations in TFP is over 20 percent.

Citation

Cooke, D., & Damjanovic, T. (2018). The Macroeconomic Implications of Firm Selection

• Working Paper Type: Working Paper
• Publication Date: Jan 1, 2018
• Deposit Date: May 23, 2019
• Publicly Available Date: May 23, 2019
• Series Title: Durham University Business School working papers series
• Public URL: https://durham-repository.worktribe.com/output/1168786
• Publisher URL: https://www.dur.ac.uk/business/research/economics/working-papers/