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Dissertation/Thesis Abstract

Essays in Macroeconomics and Firm Dynamics
by Wu, Peifan, Ph.D., New York University, 2019, 157; 22584114
Abstract (Summary)

This dissertation consists of three chapters.

Chapter 1, Market Structure, Labor Share, and Firm Investment. Recent literature points out how industry-level market structure has an impact on firm behavior, such as variations in factor shares and investment decisions. To explain the mechanism behind, we demonstrate the impact of market structure on a single firm as the impact originated from the firm's direct competitors within the same industry. We develop a business cycle model with a continuum of industries. Within each industry, firms play a dynamic duopoly game by choosing production quantities and investing in capital. As firms are not atomic within one industry, The strategic substitutabilities between the firms generate time-varying industry-level market structure and price markups. The implications of this model are consistent with the empirical evidence found in literature: i) industry-level market concentration and labor shares are negatively correlated; ii) firm investment and industry-level market concentration are negatively correlated. We also find heterogeneity in investment sensitivities to the business cycle for firms facing different opponents, supported with empirical counterpart.

Chapter 2, Firm Demographics and the Great Recession, characterizes the significant impact of firm demographics on the aggregate economy during the past Great Recession. The last U.S. recession stands out not only for its depth, but also for the rather slow recovery that followed it. What is less well known is that the number of productive units—establishments—also dropped substantially, while it kept growing in occasion of the five prior recessions. This was mostly due to the entry margin, which contracted like never before. Did such dynamics contribute to slowing down the recovery? We address this question by means of a general equilibrium business cycle model with heterogeneous firms and endogenous entry and exit. Once calibrated to match unconditional average firm-level and aggregate dynamics, we subject the model to different combinations of aggregate shocks. We find that recessions characterized by a sizeable drop in entry rates stand out along two dimensions: (1) The response of output is hump-shaped, meaning that output can diverge from trend for years following a negative mean-reverting shock; (2) The recovery of output, employment and, notably, productivity, is substantially slower.

Chapter 3, Inflation Redistribution through Firm Leverage, captures inflation redistribution effect through firms' balance sheet channel. As the majority of long-term debt contracts of the firms are in nominal terms, they are subject to inflation risk. An unanticipated, temporary inflation shock changes the real burden of debt of the firms, and therefore distorts future investment and financing decisions. The cross-sectional difference of these distortions lead to a redistribution of resources across firms, thus, firms that are closer to default benefits more from the inflation. In this way, we provide a new perspective to evaluate the welfare effect of monetary policy purely through the change in price levels.

Indexing (document details)
Advisor: Clementi, Gian Luca
Commitee: Cabral, Luis, Zin, Stanley
School: New York University
Department: Economics
School Location: United States -- New York
Source: DAI-A 81/3(E), Dissertation Abstracts International
Subjects: Economics
Keywords: Macroeconomics, Firm dynamics
Publication Number: 22584114
ISBN: 9781088385944
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