Is empirical granularity high enough to cause aggregate fluctuations? The closeness to Gaussian

Yoshiyuki Arata

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: Recent studies (e.g., Gabaix (2011)) argue that because of the high heterogeneity of firm size, microeconomic shocks generate aggregate fluctuations (i.e., the granular hypothesis). This paper tests whether empirical granularity is high enough to explain fluctuations in the GDP growth rate using firm-level data in G7 countries. I find that even when the central limit theorem does not hold, microeconomic shocks cancel each other out, and thus, the distribution of aggregate output induced by microeconomic shocks is very close to a Gaussian. In other words, the observed heterogeneity of firm size in all G7 countries is not high enough to prevent the averaging effect of microeconomic shocks. Furthermore, because of the closeness to a Gaussian, microeconomic shocks with export/import relations would result in no tail dependence of aggregate fluctuations. Since the empirical GDP growth rates deviate from a Gaussian in the tail region and show positive tail dependence across countries, the granular hypothesis cannot explain these tail features of the GDP growth rates.

Pages: 29 pages
Date: 2022-04
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.rieti.go.jp/jp/publications/dp/22e039.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:22039

Access Statistics for this paper

More papers in Discussion papers from Research Institute of Economy, Trade and Industry (RIETI) Contact information at EDIRC.
Bibliographic data for series maintained by TANIMOTO, Toko ().