Consumer Behavior and Firm Volatility

David Munro

Journal of Money, Credit and Banking, 2021, vol. 53, issue 4, 845-873

Abstract: Dispersion in firm‐level growth rates rises during recessions. To date, this has been explained through mechanisms on the firms' side of the economy. In this paper, I show that countercyclical dispersion can arise from changes on the demand side of the economy. Using retail data I find that during recessions demand elasticity rises, the dispersion of firms' growth rates increases, and this increase is larger in markets where the change in consumer behavior is the strongest. I develop a business cycle model with heterogeneous firms and frictions in product markets that highlights the relationship between consumer behavior and firm volatility.

Date: 2021
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https://doi.org/10.1111/jmcb.12749

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:53:y:2021:i:4:p:845-873

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