TY  - JOUR
AU  - Caballero,Ricardo J.
AU  - Hammour,Mohamad L.
TI  - Improper Churn:  Social Costs and Macroeconomic Consequences
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6717
PY  - 1998
Y2  - September 1998
UR  - http://www.nber.org/papers/w6717
L1  - http://www.nber.org/papers/w6717.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 assembles elements that are essential in forming an integral picture of the way a  churning' economy functions and of the disruptions caused by transactional difficulties in labor and financial markets.  We couch our analysis in a stochastic equilibrium model anchored with US evidence on gross factor flows and on rents in worker and firm income.  We develop a social accounting framework to measure the costs of transactional impediments.  We calculate the average social loss associated with structural unemployment and low productivity -- due to technological  sclerosis' and a  scrambling' of productivity rankings in entry and exit decisions.  We also estimate the loss from a recession.  An additional forty percent to the traditional unemployment cost is due to reduced productivity and is determined by the recession's cumulative effect on the economy's churn rate.  Although a recessionary shock increases the economy's  turbulence' at impact, semi-structural VAR evidence from US manufacturing indicates that, cumulatively, it results in a  chill' -- which is costly in an economy that suffers from sclerosis.
ER  -