Measured productivity with endogenous markups and economic profits

I study the effect of dynamic firm entry, scale economies and oligopolistic competition on measured productivity. These features cause endogenous, procyclical, fluctuations in measured productivity (Solow residual). I analytically decompose measured productivity into a pure technology component and an endogenous component. I show that the endogenous component arises because dynamic firm entry and oligopolistic competition cause firms to vary their optimal production which in turn interacts with returns to scale generating productivity effects. I estimate the pure technology series which shows that it is less volatile

and more persistent than a standard Solow residual. Lastly, I simulate the model with the pure technology process and show that the model mechanisms generate output amplification relative to a benchmark monopolistic competition, static entry, model.