Heterogeneity in Tastes, Productivities, and Macroeconomic Volatility

Masashige Hamano

No 2502, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: This paper examines how heterogeneity in product-level tastes and firm-level technologies shapes macroeconomic fluctuations. We develop a general equilibrium model with multiproduct firms and endogenous entry, where firms adjust their product mix in response to aggregate shocks. Calibrated to U.S. data, the model replicates key business cycle moments and shows that low taste dispersion amplifies aggregate volatility by limiting per-product profit adjustments, whereas high dispersion dampens fluctuations. While firm-level productivity granularity also affects volatility, its impact is comparatively minor. A simplified analytical model reinforces these findings, highlighting the critical role of aggregate shock propagation to firm- and product-level fixed costs, as well as heterogeneity in tastes and technologies, in determining macroeconomic volatility.

Keywords: Firm Heterogeneity; Multi-Product Firms; Business Cycles; Product Quality (search for similar items in EconPapers)
JEL-codes: D24 E23 E32 L11 L60 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2025-04
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:wap:wpaper:2502

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