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Firms and Aggregate Dynamics

Francesco Franco and Thomas Philippon ()
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Francesco Franco: Faculdade de Economia Universidade Nova de Lisboa

The Review of Economics and Statistics, 2007, vol. 89, issue 4, 587-600

Abstract: We investigate the role of permanent and transitory shocks for firms and aggregate dynamics. We find that permanent shocks to productivity and permanent shifts in the composition of output explain at least four-fifths of firms' dynamics. However, these permanent shocks are almost uncorrelated across firms and are therefore less relevant for aggregate dynamics. Transitory shocks, on the other hand, are not very important at the firm level, but they account for most of the volatility of aggregate hours and output, because they are significantly correlated across firms. Finally, we try to make some progress on the interpretation of the shocks. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2007
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Working Paper: Firms and Aggregate Dynamics (2005) Downloads
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