Aggregate fluctuations and market frictions:The role of firm and job flows

Thesis: This thesis investigates the role of the entry and exit decisions of firms and workers for aggregate fluctuations. I am interested in particular in the consequences of those reallocation flows in the presence of labor and capital markets frictions. In the first chapter, written with F. Pappadà, we develop a theoretical model to analyze the consequences of credit market frictions on the exit decisions of firms. We characterize analytically the exit decision of firms subject to credit constraints, and then investigate its implication for the response of the economy to a negative aggregate shock. We find that credit market frictions amplify the fluctuations in the exit rate as they increase the number of firms vulnerable to a negative aggregate shock. The second chapter studies the role of reallocation flows for the dynamics of aggregate productivity. I decompose aggregate productivity changes into changes in the efficiency of resource allocation across incumbent firms, changes induced by entry and exit flows and changes in within-firm productivity. I estimate this decomposition on French firm-level data from 1991 to 2006 and find that the allocation of resources between incumbent firms improves during recessions, thereby reducing the volatility of aggregate productivity. In the last chapter, written with J-O Hairault and F. Langot, we analyze the welfare cost of business cycles induced by labor market frictions. Using the standard matching model, we show that business cycles reduce social welfare by lowering average employment and average consumption.

Author(s)

Sophie Osotimehin

Date of publication
  • 2011
Keywords
  • Macroeconomics
  • Business cycles
  • Credit market imperfections
  • Aggregate productivity
  • Matching frictions
  • Reallocation
  • Entry and exit of firm
  • Job flows
Issuing body(s)
  • Université Panthéon-Sorbonne – Paris I
Date of defense
  • 19/09/2011
Thesis director(s)
  • Jean-Olivier Hairault
Version
  • 1