Aggregate fluctuations and the effect of large corporations: Evidence from Finnish monthly data

Paolo Fornaro and Henri Luomaranta

Economic Modelling, 2018, vol. 70, issue C, 245-258

Abstract: We investigate whether the granular hypothesis holds for the Finnish economy. In particular, we test if a sizable share of macroeconomic fluctuations is generated by firm-specific shocks to sales and productivity. We examine monthly firm-level data and find that the idiosyncratic shocks affecting large corporations explain around a third of business cycle fluctuations. This fact holds true both when we use the cross-sectional averages of sales and the estimated common factors, to control for common shocks. Moreover, we observe that the largest four corporations are the main drivers of this result. Finally, we detect a clear break in this relationship coinciding with the Great Recession. In particular, from 2010 onward the firm-level shocks lose their explanatory power. The findings of this paper point toward the importance of studying the granular hypothesis in a dynamic context, taking into account the possibility of breaks.

Keywords: Business cycles; Granular residual; Business groups (search for similar items in EconPapers)
JEL-codes: C22 C55 E32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:70:y:2018:i:c:p:245-258

DOI: 10.1016/j.econmod.2017.11.012

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