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

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Author Info
Claudia M. Buch (University of Tuebingen)
Joerg Doepke (University of Applied Sciences Merseburg)
Kerstin Stahn (Deutsche Bundesbank)

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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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File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=2049&context=bejeap
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Publisher Info
Article provided by Berkeley Electronic Press in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 9 (2009)
Issue (Month): 1 ()
Pages:
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Handle: RePEc:bpj:bejeap:v:9:y:2009:i:1:n:20

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Related research
Keywords: firm level volatility; Great Moderation; multifactor residual model;

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior

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    Other versions:
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    Other versions:
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