9507978 Horvath The objective of this CAREER grant is to strengthen the link between two strands of economics: industrial organization and macroeconomics. The field of industrial organization has recently been successful in illuminating several key behavioral characteristics of firms. For example, almost regardless of industry definition, small and young firms have been shown to have much more variable growth rates and higher rates of failure than large and old firms. Little attempt has been made to determine the implications of these findings for the behavior of the macroeconomy, nor has much emphasis been placed on macroeconomic forces that may be shaping these findings at the industry level. This research project would explore the interrelation between the microeconomic decision-making at the firm level and the macroeconomy. The emphasis will be on understanding how macroeconomic forces such as fiscal and monetary policy, as well as aggregate demand and supply shocks affect the distribution of operating firm types in a broad selection of industries, and how the changing distribution of firm types influences fluctuations in aggregate variables such as productivity, job creation, employment, and output. The education plan entails the development of course sequences for undergraduate and graduate student son desegregated aspects of the macroeconomy. The discipline of economias has tended to overemphasize the division between micro and macroeconomics to the point where students feel it necessary to choose early in their studies which subfield to embrace. This often works to the detriment of both the students and the entire field. The merit of the research proposal hinges on the ability of microeconomic, firm-level behavior to indicate something meaningful about macroeconomic behavior and vice-versa. Clearly, if the results provide insightful, then the distinction between microeconomics and macroeconomics from the perspective of how these subfields are taught is perhaps needlessl y stringent. The proposed courses would detail the results of the proposed research but would also explore other topics.
