Firms, Destinations, and Aggregate Fluctuations

Julian di Giovanni, Andrei Levchenko and Isabelle Mejean

No 630, Working Papers from Research Seminar in International Economics, University of Michigan

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 firms 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-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 highlighted in the recent literature: (i) when the firm size distribution is fat-tailed, idiosyncratic shocks to large firms 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.

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)
Pages: 47 pages
Date: 2012-08-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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http://www.fordschool.umich.edu/rsie/workingpapers/Papers626-650/r630.pdf

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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