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Business Cycle Fluctuations And Firms' Size Distribution Dynamics

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  • DOMENICO DELLI GATTI

    (Institute of Quantitative Methods and Economic Theory, Catholic University of Milan, Largo Gemelli1, I-20123 Milan, Italy)

  • CORRADO DI GUILMI

    (Department of Economics, Università, Politecnica delle Marche, Piaz.le Martelli 8, I-60121 Ancona, Italy)

  • EDOARDO GAFFEO

    (Department of Economics, University of Trento, Via Inama 5, I-33100 Trento, Italy)

  • GIANFRANCO GIULIONI

    (Department of Economics, Università, Politecnica delle Marche, Piaz.le Martelli 8, I-60121 Ancona, Italy)

  • MAURO GALLEGATI

    ()
    (Department of Economics, Università, Politecnica delle Marche, Piaz.le Martelli 8, I-60121 Ancona, Italy)

  • ANTONIO PALESTRINI

    (Department of Law in Society and History, University of Teramo, Via Crucioli 120, I-64100 Teramo, Italy)

Abstract

Power law behavior is an emerging property of many economic models. In this paper we emphasize the fact that power law distributions are persistent but not time invariant. In fact, the scale and shape of the firms' size distribution fluctuate over time. In particular, on a log–log space, both the intercept and the slope of the power law distribution of firms' size change over the cycle: during expansions (recessions) the straight line representing the distribution shifts up and becomes less steep (steeper). We show that the empirical distributions generated by simulations of the model presented in Ref. 11 mimic real empirical distributions remarkably well.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Advances in Complex Systems.

Volume (Year): 07 (2004)
Issue (Month): 02 ()
Pages: 223-240

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Handle: RePEc:wsi:acsxxx:v:07:y:2004:i:02:p:223-240

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Related research

Keywords: Firms' size distribution; power law; business cycle;

References

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  1. Danny Quah, 1992. "Empirical cross-section dynamics in economic growth," Discussion Paper / Institute for Empirical Macroeconomics 75, Federal Reserve Bank of Minneapolis.
  2. Naldi, M., 2003. "Concentration indices and Zipf's law," Economics Letters, Elsevier, vol. 78(3), pages 329-334, March.
  3. Youngki Lee & Luis A. N. Amaral & David Canning & Martin Meyer & H. Eugene Stanley, 1998. "Universal features in the growth dynamics of complex organizations," Papers cond-mat/9804100, arXiv.org.
  4. L. A. N. Amaral & S. V. Buldyrev & S. Havlin & H. Leschhorn & P. Maass & M. A. Salinger & H. E. Stanley & M. H. R. Stanley, 1997. "Scaling behavior in economics: I. Empirical results for company growth," Papers cond-mat/9702082, arXiv.org.
  5. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  6. Delli Gatti, Domenico & Di Guilmi, Corrado & Gaffeo, Edoardo & Gallegati, Mauro, 2004. "Bankruptcy as an exit mechanism for systems with a variable number of components," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 8-13.
  7. Katz, J. Sylvan, 1999. "The self-similar science system1," Research Policy, Elsevier, vol. 28(5), pages 501-517, June.
  8. F. M. Scherer & Dietmar Harhoff & J, rg Kukies, 2000. "Uncertainty and the size distribution of rewards from innovation," Journal of Evolutionary Economics, Springer, vol. 10(1), pages 175-200.
  9. Takayuki Mizuno & Makoto Katori & Hideki Takayasu & Misako Takayasu, 2003. "Statistical Laws in the Income of Japanese Companies," Papers cond-mat/0308365, arXiv.org.
  10. Yoshi Fujiwara, 2003. "Zipf Law in Firms Bankruptcy," Papers cond-mat/0310062, arXiv.org.
  11. Xavier Gabaix, 2004. "Power laws and the origins of aggregate fluctuations," Econometric Society 2004 North American Summer Meetings 484, Econometric Society.
  12. Corrado Di Guilmi & Mauro Gallegati & Edoardo Gaffeo, 2003. "Power Law Scaling in the World Income Distribution," Economics Bulletin, AccessEcon, vol. 15(6), pages 1-7.
  13. Gaffeo, Edoardo & Gallegati, Mauro & Palestrini, Antonio, 2003. "On the size distribution of firms: additional evidence from the G7 countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 117-123.
  14. Brock, W A, 1999. "Scaling in Economics: A Reader's Guide," Industrial and Corporate Change, Oxford University Press, vol. 8(3), pages 409-46, September.
  15. Gatti, Domenico Delli & Guilmi, Corrado Di & Gaffeo, Edoardo & Giulioni, Gianfranco & Gallegati, Mauro & Palestrini, Antonio, 2005. "A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 56(4), pages 489-512, April.
  16. Cowling, Keith & Waterson, Michael, 1976. "Price-Cost Margins and Market Structure," Economica, London School of Economics and Political Science, vol. 43(171), pages 267-74, August.
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Citations

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Cited by:
  1. Giuseppe Moscarini & Fabien Postel-Vinay, 2009. "The Timing of Labor Market Expansions: New Facts and a New Hypothesis," NBER Chapters, in: NBER Macroeconomics Annual 2008, Volume 23, pages 1-51 National Bureau of Economic Research, Inc.
  2. Matteo Richiardi, 2006. "Toward a Non-Equilibrium Unemployment Theory," Computational Economics, Society for Computational Economics, vol. 28(4), pages 421-446, November.
  3. Enrico Scalas & Mauro Gallegati & Eric Guerci & David Mas & Alessandra Tedeschi, 2006. "Growth and Allocation of Resources in Economics: The Agent-Based Approach," Papers physics/0608221, arXiv.org.
  4. Scalas, Enrico, 2006. "The application of continuous-time random walks in finance and economics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 362(2), pages 225-239.
  5. Carlo Bianchi & Pasquale Cirillo & Mauro Gallegati & Pietro Vagliasindi, 2007. "Validating and Calibrating Agent-Based Models: A Case Study," Computational Economics, Society for Computational Economics, vol. 30(3), pages 245-264, October.

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