This paper combines impatience with large recurring expenditures to replicate the observation that middle-class U.S. households consume much more out of transitory income than permanent income theory predicts. In the present model, households make a large recurring expenditure of exogenous...

This paper estimates a structural model of firm growth and partially sunk investment. In the model, the firm's optimal adjustment keeps the gap between the actual capital stock and its frictionless counterpart between two boundaries. We show that any two quantiles of output growth conditional on...

This paper considers the effects of a monopolist raising the cost of entry for potential competitors on Markov-perfect industry dynamics. All entrants serving the model industry incur sunk costs, which they partially recover when exiting. Empirically, the probability of exit declines with the...

Major shifts in employment between industries and between firms within industries usually accompany recessions. Although this observation suggests that exogenous changes in the optimal allocation of labor are an important source of aggregate employment fluctuations, the macroeconomic...

In this paper we develop an empirical model of entrepreneurs' business continuation decisions, and we estimate its parameters using a new panel of monthly alcohol tax returns from bars in the state of Texas. In our data, entrepreneurial failure is frequent and predictable. In the first year of...

The authors build a small-scale econometric model based on the permanent income theory of consumption and balanced economic growth in order to study the influence of permanent and transitory factors on the level of economic activity.

This paper summarizes interviews from 1998 with 590 individuals trying to create a business centered around five questions: “Who are you?”, “What are you trying to accomplish?”, “What have you and others put into the business?”, “What have you accomplished?”, “What remains to...

Aggressive deregulation of the mortgage market in the early 1980s triggered innovations that greatly reduced the required home equity of U.S. households. This allowed households to cash-out a large part of accumulated equity, which equaled 71 percent of GDP in 1982. A borrowing surge followed:...