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This paper studies competing sources of declining dynamism. Evidence shows that an important component of this decline is accounted for by the reduction in the response of employment to shocks in US establishments. Using a plant-level dynamic optimization problem as a framework for analysis, four potential reasons for this decline are studied: (i) a change in exogenous processes for profits, (ii) an increase in impatience, (iii) increased market power, and (iv) increasing adjustment costs. We identify and quantity the contribution of each of these factors building on a simulated method of moments estimation of our structural model. Our results indicate that the reduction in responsiveness largely reflects increased costs of employment adjustment. Changes in market power, as captured by changes in the curvature of the revenue function, play a minimal role. But, in the presence of rising adjustment costs, measured sales-weighted markups using the recently popular indirect production approach rise substantially, along with rising dispersion and skewness of such measured markups. JEL classification: E24, E32, J23 Key words: declining dynamism, adjustment costs, employment, Working Paper 2024-3 1 Motivation The decline in dynamism in US establishments is well documented. In the 1980s, the pace of job reallocation across establishments in the US private non-farm [...]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2007.06.002 Byline: Russell Cooper (a), John Haltiwanger (b), Jonathan L. Willis (c) Abstract: We estimate a search model to match hours, employment, vacancies and unemployment at the micro- and macrolevels. We establish a set of facts concerning the variability of unemployment and vacancies in the aggregate and the distribution of net employment growth and the comovement of hours and employment growth at the establishment level. A search model with non-convex costs of posting vacancies, establishment-level profitability shocks and a contracting framework to set hours provides a structure to understand these observations. The estimated model is able to capture both the aggregate and establishment-level facts. Author Affiliation: (a) Department of Economics, University of Texas at Austin and the NBER, Austin, TX 78712, USA (b) Department of Economics, University of Maryland and the NBER, USA (c) Research Department, Federal Reserve Bank of Kansas City, USA Article History: Received 15 September 2006; Revised 6 June 2007; Accepted 7 June 2007 Article Note: (footnote) [star] We are grateful to an anonymous referee, Robert King, Shigeru Fujita, Murat Tasci and Eran Yashiv for helpful comments. Thanks also to Stephen Nickell, Julian Messina, participants at the 2006 Swiss National Bank/JME Conference and seminar participants at the Ohio State University, Washington University of St. Louis and the Federal Reserve Banks of Chicago, Dallas, Kansas City and New York for comments and suggestions. The authors thank the NSF for financial support. The views expressed herein are solely those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System.

The contribution of learning-by-doing (LBD) mechanism in stimulating the endogenous propagation of shocks in business cycle was studied. The results showed that the LBD had the potential of creating endogenous propagation and autocorrelation function was noticed for real output growth with positive coefficients for several periods.

An extension of the Diamond-Dybvig framework was undertaken to analyze the effects of bank runs and to forecast banks' reactions to the possibility of runs. The framework revealed that banks also have the option to offer contracts that might possibly lead to runs in order to attain more profitable investment returns. The approach signified the presence of intermediaries' true liquidity role in offering new conditions for bank runs.

A standard business cycle model modified with contemporaneous and dynamic complementarities was proposed to evaluate the significance of dynamic complementarities as an antecedent of propagation in a dynamic stochastic economy. The model relies on past data from Baxter and King (1991) and issues on propagation from dynamic complementarities from Cooper and John (1988). The complementarities are seen as contributing factors that augment and produce shocks to technology and tastes.