and Federal Reserve Bank of Cleveland

This paper analyzes the implications of plant-level dynamics over the business cycle. We first document basic patterns of entry and exit of U.S. manufacturing plants between 1972 and 1997. We find that the entry rate is more cyclical than the exit rate. We also find that the differences in productivity and employment between booms and recessions are particularly larger for entering plants than for exiting plants. Second, we build a general equilibrium model of industry dynamics and compare its predictions to the data. Finally, we explore the policy implications of the model