Economics at your fingertips  

The empirics of granular origins: some challenges and solutions with an application to the UK

Nikola Dacic () and Marko Melolinna ()
Additional contact information
Nikola Dacic: Goldman Sachs & Co
Marko Melolinna: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 842, Bank of England working papers from Bank of England

Abstract: We study the effects of firm-level microeconomic fluctuations on aggregate productivity in the United Kingdom. We show that a standard measure of residual productivity growth of the largest UK firms (the ‘granular residual’) produces results that are counter-intuitive and not statistically significant. To combat this, we introduce a unique production function approach to estimate firm-specific technology shocks, accounting for firm-level heterogeneity and common shocks. Using this measure, we find that firm-level shocks matter; the ‘granular residual’ explains around 30% of aggregate UK productivity dynamics. We also show that simplifications of our approach, which omit controlling for firm-level heterogeneity or do not account for common shocks, do not perform well, highlighting the importance of identifying firm-specific shocks correctly in order to properly test the ‘granularity hypothesis’.

Keywords: business cycle; aggregate volatility; granularity hypothesis; firm-level productivity (search for similar items in EconPapers)
JEL-codes: E23 E24 E32 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2019-12-20
New Economics Papers: this item is included in nep-bec, nep-eff, nep-eur and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) ... cation-to-the-uk.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().

Page updated 2021-01-12
Handle: RePEc:boe:boeewp:0842