The cross-section of firms over the business cycle: new facts and a DSGE exploration

Ruediger Bachmann and Christian Bayer

No 2009,17, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: Using a unique German firm-level data set, this paper is the first to jointly study the cyclical properties of the cross-sections of firm-level real value added and Solow residual innovations, as well as capital and employment adjustment. We find two new business cycle facts: 1) The cross-sectional standard deviation of firm-level innovations in the Solow residual, value added and employment is robustly and significantly countercyclical. 2) The cross-sectional standard deviation of firm-level investment is procyclical. We show that a heterogeneousfirm RBC model with quantitatively realistic countercyclical innovations in the firm-level Solow residual and non-convex adjustment costs calibrated to the non-Gaussian features of the steady state investment rate distribution, produces investment dispersion that positively comoves with the cycle, with a correlation coefficient of 0.65, compared to 0.61 in the data. We argue more generally that the cross-sectional business cycle dynamics impose tight empirical restrictions on structural parameters and stochastic properties of driving forces in heterogeneousfirmmodels, and are therefore paramount in the calibration of these models.

Keywords: Ss model; RBC model; cross-sectional firm dynamics; lumpy investment; countercyclical risk; aggregate shocks; idiosyncratic shocks; heterogeneous firms. (search for similar items in EconPapers)
JEL-codes: E20 E22 E30 E32 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: The Cross-section of Firms over the Business Cycle: New Facts and a DSGE Exploration (2009)
Working Paper: The Cross-section of Firms over the Business Cycle: New Facts and a DSGE Exploration (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp1:200917

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