TY  - JOUR
AU  - Caballero,Ricardo J.
AU  - Hammour,Mohamad L.
TI  - The Cleansing Effect of Recessions
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3922
PY  - 1991
Y2  - December 1991
UR  - http://www.nber.org/papers/w3922
L1  - http://www.nber.org/papers/w3922.pdf
N1  - Author contact info:
Ricardo J. Caballero
MIT
Department of Economics
Room E52-373a
Cambridge, MA 02142-1347
Tel: 617/253-0489
Fax: 617/253-6915
E-Mail: caball@mit.edu

Mohamad Hammour
Delta
Ecole Nornale Superieurel
48 Boulvard Jourdan
75014 Paris
FRANCE
E-Mail: hammour@DELTA.ENS.FR
AB  - 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process and product innovation, production units that embody the newest techniques are continuously being created, and outdated units are being destroyed.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 Although outdated production units are the most likely to turn unprofitable and be scrapped in a recession, they can be "insulated" from the fall in demand if it is accompanied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.
ER  -