Great Moderation at the Firm Level? Unconditional vs. Conditional Output Volatility
AbstractAggregated output in industrialized countries has become less volatile over the past decades. Whether this “Great Moderation” can be found in firm level data as well remains disputed. We study the evolution of firm level output volatility using a balanced panel dataset on German firms that covers 35 years (1971-2005) and about 1,500 firms per year. In contrast to earlier work using firm level data, we use the multifactor residual model proposed by Pesaran (2006) to isolate the idiosyncratic component of firms’ real sales growth from macroeconomic developments. Our paper has three main findings. First, time trends in unconditional firm level and aggregated output volatility in Germany are similar. There has been a long-run downward trend, which was interrupted by the unification period. Second, the conditional, idiosyncratic firm level volatility does not exhibit a downward trend. If anything idiosyncratic volatility has been on a slow trend rise. Third, we find evidence of a positive link between growth and volatility at the firm level.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2324.
Date of creation: 2008
Date of revision:
firm level volatility; Great Moderation; multifactor residual model;
Other versions of this item:
- Buch Claudia M & Doepke Joerg & Stahn Kerstin, 2009. "Great Moderation at the Firm Level? Unconditional vs. Conditional Output Volatility," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-27, May.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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