Great Moderation at the Firm Level? Unconditional vs. Conditional Output Volatility

Claudia Buch, Doepke Joerg (joerg.doepke@hs-merseburg.de) and Kerstin Stahn
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Doepke Joerg: University of Applied Sciences Merseburg

The B.E. Journal of Economic Analysis & Policy, 2009, vol. 9, issue 1, 27

Abstract: We test whether there has been a "Great Moderation" of output volatility at the firm level. The multifactor residual model proposed by Pesaran (2006) is used to isolate the idiosyncratic component of firms' sales growth from macroeconomic developments. This methodology is applied to a balanced panel of about 1,200 German firms covering a 35-year period (1971-2005). Our research has three main findings. First, unconditional firm-level volatility and aggregate output volatility have seen similar downward trends. Second, conditional, idiosyncratic firm-level volatility does not exhibit a downward trend. Third, there is a positive link between growth and volatility at the firm level.

Keywords: firm level volatility; Great Moderation; multifactor residual model (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (12)

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DOI: 10.2202/1935-1682.2049

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