Firms, Destinations, and Aggregate Fluctuations

Andrei Levchenko, Julian di Giovanni and Isabelle Mejean

No 9168, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper provides a forensic account of the role of individual firms in generating aggregate fluctuations using data covering the universe of French firms for the period 1990?2007. We derive a theoretically-founded set of estimating equations that decompose firms? annual sales growth rate into different components. The firm-specific component contributes substantially to aggregate sales volatility, mattering about as much as the components capturing shocks that are common across firms within a sector or country. We then decompose the firm-specific component to provide evidence on two mechanisms that generate aggregate fluctuations from microeconomic shocks: (i) when the firm size distribution is fat-tailed, idiosyncratic shocks to large firms contribute to aggregate fluctuations (Gabaix, 2011), and (ii) sizable aggregate volatility can arise from idiosyncratic shocks due to input-output linkages across the economy (Acemoglu et al., 2012). We find that firm linkages are approximately twice as important as granularity in driving aggregate fluctuations.

Keywords: Aggregate volatility; Firm-level shocks; Large firms; Linkages (search for similar items in EconPapers)
JEL-codes: E32 F12 F41 (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-bec, nep-int and nep-mac
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Firms, Destinations, and Aggregate Fluctuations (2014)
Working Paper: Firms, Destinations, and Aggregate Fluctuations (2014)
Working Paper: Firms, destinations, and aggregate fluctuations (2014)
Working Paper: Firms, Destinations, and Aggregate Fluctuations (2013)
Working Paper: Firms, Destinations, and Aggregate Fluctuations (2012)
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