Entry and exit echoes |
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Authors: | Boyan Jovanovic Chung-Yi Tse |
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Affiliation: | 1. NYU, Department of Economics, 19 w 4th St., New York, NY, United States;2. University of Hong Kong, School of Economics and Finance, Pokfulam Road, Hong Kong, China |
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Abstract: | While aggregate data do not show the investment echoes predicted by vintage-capital models, echoes arise in rates of entry and exit of firms at the industry level. Moreover, industries where prices decline rapidly experience early ‘shakeouts’. The relation emerges naturally in a vintage-capital model in which exit of firms sometimes accompanies the replacement of their capital, and in which a shakeout is the first replacement ‘echo’ of the capital created when the industry is born. |
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