Hetereogeneous firms, growth and the long shadows of business cycles

Cristiana Bendetti-Fasil, Giammario Impullitti, Omar Licandro (), Petr Sedlacek and Adam Hal Spencer

No 2024/03, Discussion Papers from University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM)

Abstract: R&D is procyclical and a crucial driver of growth. Evidence indicates that innovation activity varies widely across firms. Is there heterogeneity in innovation cyclicality? Does innovation heterogeneity matter for business cycle propagation? We provide empirical evidence that more productive firms are less procyclical in innovation. We develop a model replicating this observation, with selection as the driver of heterogeneous innovation cyclicality. We then examine how heterogeneous innovation and growth influence business cycle propagation. Dynamics of firm entry and exit, coupled with heterogeneous cyclicality, significantly amplify TFP shock propagation. Business cycle fluctuations give substantial welfare losses, with firm heterogeneity contributing significantly.

Keywords: Growth; Business Cycles; Innovation; Heterogeneous Firms (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-bec, nep-cse, nep-dge, nep-ent, nep-ino, nep-sbm and nep-tid
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Working Paper: Hetereogeneous Firms, Growth and the Long Shadows of Business Cycles (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notcfc:2024/03

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