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Great moderation at the firm level? Unconditional versus conditional output volatility

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  • Buch, Claudia M.
  • Döpke, Jörg
  • Stahn, Kerstin

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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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2008,13.

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Date of creation: 2008
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Handle: RePEc:zbw:bubdp1:7363

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Keywords: firm level volatility; Great Moderation; multifactor residual model;

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References

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Cited by:
  1. Balazs Egert & Douglas Sutherland, 2012. "The Nature of Financial and Real Business Cycles: The Great Moderation and Banking Sector Pro-Cyclicality," CESifo Working Paper Series 3824, CESifo Group Munich.
  2. Che, Natasha Xingyuan, 2009. "The great dissolution: organization capital and diverging volatility puzzle," MPRA Paper 13701, University Library of Munich, Germany.

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