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The Macroeconomic Implications of Firm Selection

Cooke, Dudley; Damjanovic, Tatiana

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Authors

Dudley Cooke



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/

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