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Great Moderation at the Firm Level? Unconditional vs. Conditional Output Volatility

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  • Buch Claudia M

    ()
    (University of Tuebingen)

  • Doepke Joerg

    ()
    (University of Applied Sciences Merseburg)

  • Stahn Kerstin

    ()
    (Deutsche Bundesbank)

Abstract

We test whether there has been a "Great Moderation" of output volatility at the firm level. The multifactor residual model proposed by Pesaran (2006) is used to isolate the idiosyncratic component of firms' sales growth from macroeconomic developments. This methodology is applied to a balanced panel of about 1,200 German firms covering a 35-year period (1971-2005). Our research has three main findings. First, unconditional firm-level volatility and aggregate output volatility have seen similar downward trends. Second, conditional, idiosyncratic firm-level volatility does not exhibit a downward trend. Third, there is a positive link between growth and volatility at the firm level.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 9 (2009)
Issue (Month): 1 (May)
Pages: 1-27

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Handle: RePEc:bpj:bejeap:v:9:y:2009:i:1:n:20

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  1. Luca Benati & Paolo Surico, 2009. "VAR Analysis and the Great Moderation," American Economic Review, American Economic Association, vol. 99(4), pages 1636-52, September.
  2. Diego Comin & Thomas Philippon, 2005. "The Rise in Firm-Level Volatility: Causes and Consequences," NBER Working Papers 11388, National Bureau of Economic Research, Inc.
  3. Cerqueiro, Geraldo & Degryse, Hans & Ongena, Steven, 2007. "Rules versus Discretion in Loan Rate Setting," CEPR Discussion Papers 6450, C.E.P.R. Discussion Papers.
  4. Strotmann, Harald & Döpke, Jörg & Buch, Claudia M., 2006. "Does trade openness increase firm-level volatility?," Discussion Paper Series 1: Economic Studies 2006,40, Deutsche Bundesbank, Research Centre.
  5. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 107-180 National Bureau of Economic Research, Inc.
  6. Jean Imbs, 2006. "Growth and Volatility," Swiss Finance Institute Research Paper Series 06-09, Swiss Finance Institute.
  7. Ang, James S & Peterson, David R, 1985. " Return, Risk, and Yield: Evidence from Ex Ante Data," Journal of Finance, American Finance Association, vol. 40(2), pages 537-48, June.
  8. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
  9. Weber, Sebastian & Döpke, Jörg, 2006. "The within-distribution business cycle dynamics of German firms," Discussion Paper Series 1: Economic Studies 2006,29, Deutsche Bundesbank, Research Centre.
  10. Diego Comin & Sunil Mulani, 2006. "Diverging Trends in Aggregate and Firm Volatility," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 374-383, May.
  11. M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
  12. Harvey, A C, 1976. "Estimating Regression Models with Multiplicative Heteroscedasticity," Econometrica, Econometric Society, vol. 44(3), pages 461-65, May.
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Cited by:
  1. Vannoorenberghe, G., 2012. "Firm-level volatility and exports," Journal of International Economics, Elsevier, vol. 86(1), pages 57-67.

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