Granular sources of the Italian business cycle

Nicolò Gnocato and Concetta Rondinelli

No 1190, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: A recent strand of literature has investigated the granular sources of the business cycle, i.e. to what extent firm-level dynamics have an impact on aggregate fluctuations. From a conceptual point of view, in the presence of fat-tailed firm-size distributions, shocks to large firms may not average out and may then have a direct effect on aggregate fluctuations; in addition, firm-to-firm linkages can propagate shocks to individual firms, leading to movements at the aggregate level. Using Cerved and INPS data, we test the granular hypothesis on a large sample of Italian firms, covering the period 1999-2014. Idiosyncratic Total Factor Productivity (TFP) shocks are found to explain around 30 per cent of aggregate TFP volatility; furthermore, the contribution of these linkages to firm-specific aggregate volatility is more important than that of the direct effect, especially for the manufacturing sector.

Keywords: aggregate fluctuations; firm-level dynamics; productivity (search for similar items in EconPapers)
JEL-codes: D24 E32 L25 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-bec, nep-eff, nep-eur, nep-mac, nep-sbm and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1190_18

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