Firm Dynamics and the Origins of Aggregate Fluctuations

Andrea Stella

No 1133, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: What drives aggregate fluctuations? I test the granular hypothesis, according to which the largest firms in the economy drive aggregate dynamics, by estimating a dynamic factor model with firm-level data and controlling for the propagation of firm-level shocks using multi-firm growth model. Each time series, the growth rate of sales of a specific firm, is decomposed in an unobserved common macroeconomic component and in a residual that I interpret as an idiosyncratic firm-level component. The empirical results suggest that, once I control for aggregate shocks, idiosyncratic shocks do not explain much of U.S. GDP growth fluctuations.

Keywords: Business Cycles; Firm Dynamics; Granular Residual; Dynamic Factor Models (search for similar items in EconPapers)
JEL-codes: C30 D20 E32 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2015-04-22
New Economics Papers: this item is included in nep-bec and nep-mac
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Citations: View citations in EconPapers (48)

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http://dx.doi.org/10.17016/IFDP.2015.1133 http://dx.doi.org/10.17016/IFDP.2015.1133 (application/pdf)

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Journal Article: Firm dynamics and the origins of aggregate fluctuations (2015)
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