Endogenous Firm Entry and Exit in a DSGE Model for Iran Economy

Document Type : Research Article

Authors

1 Associate Professor/ IMPS

2 Assistant Professor/ Alame Tabatabaee University

3 Assistant Professor/ MBRI

Abstract

Firm life cycle could be considered as a determinant of business cycles since business environment factors inhibit coordination between Business forming and collapsing with the business cycles promptly. In this study, we try to append firms' endogenous entry and exit mechanism in a dynamic stochastic general equilibrium model (DSGE). Regarding previous studies, we establish a better illustration of endogenous exit. Finally, we estimate the model by using Iran macroeconomics data. The simulation results show the endogenous entry and exit affect the business cycle length and magnitude. Also, Firm Endogenous Entry and Exit in the model causes the Demand Shock, absorb in the economy by the intensive margin. It means the firm uses more inputs to produce more output. On the other hand, in responding to the supply side shock, more firm enter to business (extensive margin).

Firm life cycle could be considered as a determinant of business cycles since business environment factors inhibit coordination between Business forming and collapsing with the business cycles promptly. In this study, we try to append firms' endogenous entry and exit mechanism in a dynamic stochastic general equilibrium model (DSGE). Regarding previous studies, we establish a better illustration of endogenous exit. Finally, we estimate the model by using Iran macroeconomics data. The simulation results show the endogenous entry and exit affect the business cycle length and magnitude. Also, Firm Endogenous Entry and Exit in the model causes the Demand Shock, absorb in the economy by the intensive margin. It means the firm uses more inputs to produce more output. On the other hand, in responding to the supply side shock, more firm enter to business (extensive margin).

Keywords

References

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Journal of Applied Economics Studies in Iran
Volume 8, Issue 29
May 2019
Pages 1-39

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