Firm dynamics and the origins of aggregate fluctuations

Andrea Stella

Journal of Economic Dynamics and Control, 2015, vol. 55, issue C, 71-88

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. The growth rate of a firm׳s sales is decomposed in an unobserved common macroeconomic component and in a residual that I interpret as an idiosyncratic firm-level component. The empirical results show that, after properly controlling for aggregate shocks, idiosyncratic shocks have little role in explaining U.S. business cycle 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)
Date: 2015
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Citations: View citations in EconPapers (41)

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Related works:
Working Paper: Firm Dynamics and the Origins of Aggregate Fluctuations (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:55:y:2015:i:c:p:71-88

DOI: 10.1016/j.jedc.2015.03.009

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