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Firms, destinations, and aggregate fluctuations

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  • Julian di Giovanni

    ()

  • Andrei A. Levchenko
  • Isabelle Méjean

Abstract

This paper uses a database covering the universe of French firms for the period 1990- 2007 to provide a forensic account of the role of individual firms in generating aggregate fluctuations. We set up a simple multi-sector model of heterogeneous firms selling to multiple markets to motivate a theoretically-founded decomposition of firms' annual sales growth rate into different components. We find that 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 highlighted in the recent literature: (i) when the firm size distribution is fat-tailed, idiosyncratic shocks to large firms directly contribute to aggregate fluctuations; and (ii) aggregate fluctuations can arise from idiosyncratic shocks due to input-output linkages across the economy. Firm linkages are approximately three times as important as the direct effect of firm shocks in driving aggregate fluctuations.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1387.

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Date of creation: Oct 2013
Date of revision: Apr 2014
Handle: RePEc:upf:upfgen:1387

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Web page: http://www.econ.upf.edu/

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Keywords: Aggregate Fluctuations; Firm-Level Shocks; Large Firms; Linkages.;

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References

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Cited by:
  1. 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.
  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. 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.
  4. 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.
  5. Vasco Carvalho & Nico Voigtländer, 2014. "Input Diffusion and the Evolution of Production Networks," Working Papers 759, Barcelona Graduate School of Economics.

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