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

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Author Info
Claudia M. Buch ()
Jörg Döpke
Kerstin Stahn

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Abstract

Aggregated 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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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2324.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2324

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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:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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  1. Geraldo Cerqueiro & Hans Degryse & Steven Ongena, 2007. "Rules versus Discretion in Loan Rate Setting," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2006. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Working Papers 12354, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Harvey, A C, 1976. "Estimating Regression Models with Multiplicative Heteroscedasticity," Econometrica, Econometric Society, vol. 44(3), pages 461-65, May. [Downloadable!] (restricted)
  4. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, 07. [Downloadable!] (restricted)
    Other versions:
  5. 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. [Downloadable!]
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  6. Imbs, Jean, 2007. "Growth and volatility," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1848-1862, October. [Downloadable!] (restricted)
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  7. 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 120-137 National Bureau of Economic Research, Inc. [Downloadable!]
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  17. Luca Benati & Paolo Surico, 2008. "VAR analysis and the Great Moderation," Working Paper Series 866, European Central Bank. [Downloadable!]
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    Other versions:
  19. Diego Comin & Erica L. Groshen & Bess Rubin, 2006. "Turbulent firms, turbulent wages?," Staff Reports 238, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
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