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Firms, Destinations, and Aggregate Fluctuations

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  • di Giovanni, Julian
  • Levchenko, Andrei A.
  • Mejean, Isabelle

Abstract

This paper provides a forensic account of the role of individual firms in generating aggregate fluctuations using data covering the universe of French firms for the period 1990–2007. We derive a theoretically-founded set of estimating equations that decompose firms’ annual sales growth rate into different components. The firm-specific component contributes substantially to aggregate sales volatility, mattering about as much as the components capturing shocks that are common across firms within a sector or country. We then decompose the firm-specific component to provide evidence on two mechanisms that generate aggregate fluctuations from microeconomic shocks: (i) when the firm size distribution is fat-tailed, idiosyncratic shocks to large firms contribute to aggregate fluctuations (Gabaix, 2011), and (ii) sizable aggregate volatility can arise from idiosyncratic shocks due to input-output linkages across the economy (Acemoglu et al., 2012). We find that firm linkages are approximately twice as important as granularity in driving aggregate fluctuations.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9168.

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Date of creation: Oct 2012
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Handle: RePEc:cpr:ceprdp:9168

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Keywords: Aggregate Volatility; Firm-Level Shocks; Large Firms; Linkages;

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References

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  1. David Thesmar & Mathias Thoenig, 2011. "Contrasting Trends in Firm Volatility," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(4), pages 143-80, October.
  2. Vasco Carvalho & X. Gabaix, 2010. "The Great Diversification?," Working Papers 422, Barcelona Graduate School of Economics.
  3. Shea, John S, 2002. "Complementarities and Comovements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 412-33, May.
  4. CASTRO, Rui & CLEMENTI, Gian Luca & LEE, Yoonsoo, 2010. "Cross-Sectoral Variation in Firm-Level Idiosyncratic Risk," Cahiers de recherche 15-2010, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  5. Daron Acemoglu & Vasco M. Carvalho & Asuman E. Ozdaglar & Alireza Tahbaz-Salehi, 2012. "The Network Origins of Aggregate Fluctuations," Levine's Working Paper Archive 786969000000000359, David K. Levine.
  6. Claudia Canals & Xavier Gabaix & Josep M. Vilarrubia & David Weinstein, 2007. "Trade patterns, trade balances and idiosyncratic shocks," Banco de Espa�a Working Papers 0721, Banco de Espa�a.
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  12. Julian di Giovanni & Andrei A. Levchenko, 2008. "Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement," Working Papers 580, Research Seminar in International Economics, University of Michigan.
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  16. Anil Kashyap & Francois Gourio, 2007. "Investment Spikes: New Facts and a General Equilibrium Exploration," 2007 Meeting Papers 148, Society for Economic Dynamics.
  17. Xavier Gabaix, 2005. "The Granular Origins of Aggregate Fluctuations," 2005 Meeting Papers 470, Society for Economic Dynamics.
  18. Sophie Osotimehin, 2013. "Aggregate productivity and the allocation of resources over the business cycle," Virginia Economics Online Papers 404, University of Virginia, Department of Economics.
  19. Diego Comin & Thomas Philippon, 2005. "The Rise in Firm-Level Volatility: Causes and Consequences," NBER Working Papers 11388, National Bureau of Economic Research, Inc.
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  23. Andrew T. Foerster & Pierre-Daniel G. Sarte & Mark W. Watson, 2011. "Sectoral versus Aggregate Shocks: A Structural Factor Analysis of Industrial Production," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 1 - 38.
  24. Stockman, Alan C., 1988. "Sectoral and national aggregate disturbances to industrial output in seven European countries," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 387-409.
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Cited by:
  1. Franziska Bremus, 2011. "Financial Integration and Macroeconomic Stability: What Role for Large Banks?," Discussion Papers of DIW Berlin 1178, DIW Berlin, German Institute for Economic Research.
  2. Vasco M. Carvalho & Nico Voigtländer, 2014. "Input Diffusion and the Evolution of Production Networks," NBER Working Papers 20025, National Bureau of Economic Research, Inc.
  3. Jörn Kleinert & Julien Martin & Farid Toubal, 2012. "The Few Leading the Many: Foreign Affiliates and Business Cycle Comovement," Working Papers 2012-18, CEPII research center.
  4. Vasco Carvalho & Nico Voigtländer, 2014. "Input Diffusion and the Evolution of Production Networks," Working Papers 759, Barcelona Graduate School of Economics.
  5. Vasco Carvalho & Nico Voigtländer, 2014. "Input diffusion and the evolution of production networks," Economics Working Papers 1418, Department of Economics and Business, Universitat Pompeu Fabra.

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