Firms, Destinations, and Aggregate Fluctuations

Isabelle Mejean, Andrei Levchenko and Julian di Giovanni

No 352, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: This paper uses a database covering the universe of French firms for the period 1990-2007 to provide a forensic account of the role of individual ifrms in generating aggregate fluctuations. We set up a simple multi-sector model of heterogeneous firms selling to multiple markets to motivate a theoretically-founded set of estimating equations that decompose firms' annual sales growth rate into different components. We find that the firm-specic 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 highlighted in the recent literature: (i) when the rm size distribution is fat-tailed, idiosyncratic shocks to large rms contribute to aggregate fluctuations (the "granularity" hypothesis of 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.

Date: 2013
New Economics Papers: this item is included in nep-bec and nep-mac
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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 (2012)
Working Paper: Firms, Destinations, and Aggregate Fluctuations (2012)
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