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Granularity of the Business Cycle Fluctuations: The Spanish Case

Omar Blanco Arroyo () and Simone Alfarano ()
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Omar Blanco Arroyo: Universitat Jaume I

Authors registered in the RePEc Author Service: Omar Blanco-Arroyo ()

Economia Coyuntural,Revista de temas de perspectivas y coyuntura, 2017, vol. 2, issue 1, 31-58

Abstract: Following the approach proposed by Gabaix (2011), this paper aims to verify the existence of granularity in the Spanish business cycle fluctuations. A granular firm is characterized by the fact that its idiosyncratic shocks have a significant impact on GDP growth fluctuations. Despite the fact that granular firms constitute just a marginal fraction of the total number of firms, they account for a significant part of business cycle fluctuations. Our analysis shows that half of the GDP growth fluctuations of the Spanish economy can be linked to the idiosyncratic shocks of the largest 100 Spanish firms. Our work contributes to strengthening the empirical relevance of the granular hypothesis. The results show that the Spanish economy, as happens in the US economy, may be represented by a large number of small and medium enterprises whose individual evolution has no impact at the aggregate level, and a small number of large firms whose fluctuations contribute significantly to the variability of the Spanish business cycle.

Keywords: granularity; granular economy; idiosyncratic shocks; aggregate fluctuations; power law behaviour. (search for similar items in EconPapers)
JEL-codes: C16 E32 (search for similar items in EconPapers)
Date: 2017-03
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Working Paper: Granularity of the business cycle fluctuations: The Spanish case (2016) Downloads
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