The Cleansing Effect of Recessions / Ricardo J. Caballero, Mohamad L. Hammour.

Format:

Book

Author/Creator:

Caballero, Ricardo J.

Contributor:

National Bureau of Economic Research.

Hammour, Mohamad L.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3922.

NBER working paper series no. w3922

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1991.

Summary:

This paper investigates the response of industries to cyclical variations in demand in the context of a vintage model of ?creative destruction.? Due to process and product innovation, production units that embody the newest techniques are continuously being created, and outdated units are being destroyed. We investigate the extent to which changes in demand are accommodated on the creation or destruction margins. Although outdated production units are the most likely to turn unprofitable and be scrapped in a recession, they can be "insulated" from the fall in demand if it is accompanied by a reduction in the creation rate. The model's implications are broadly consistent with observed variations in manufacturing gross job flows. The calibrated model matches the relative volatilities of job creation and destruction, and their asymmetries over the cycle.

Notes:

Print version record

December 1991.