Aggregate-Demand Amplification of Supply Disruptions: The Entry-Exit Multiplier / Florin O. Bilbiie, Marc J. Melitz.

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Bilbiie, Florin O

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w28258.Publication details: Cambridge, Mass. National Bureau of Economic Research 2020.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Due to its impact on nominal firm profits, price rigidity amplifies the response of entry and exit to adverse supply shocks, such as COVID-19. This "entry-exit multiplier" triggers substantial magnification of the welfare losses due to negative supply shocks--even in an efficient-entry benchmark. In addition to those second-order effects, price rigidity also induces first-order amplification under external returns, when entry is no longer efficient. Endogenous entry-exit thus radically changes the consequences of nominal rigidities: in addition to the aggregate-demand amplification of supply disruptions, it also reconciles the response of hours worked across the benchmark New Keynesian and RBC models.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w28258 (Browse shelf(Opens below))	Not For Loan

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December 2020.

Due to its impact on nominal firm profits, price rigidity amplifies the response of entry and exit to adverse supply shocks, such as COVID-19. This "entry-exit multiplier" triggers substantial magnification of the welfare losses due to negative supply shocks--even in an efficient-entry benchmark. In addition to those second-order effects, price rigidity also induces first-order amplification under external returns, when entry is no longer efficient. Endogenous entry-exit thus radically changes the consequences of nominal rigidities: in addition to the aggregate-demand amplification of supply disruptions, it also reconciles the response of hours worked across the benchmark New Keynesian and RBC models.