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Firm dynamics and the origins of aggregate fluctuations

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  • Stella, Andrea

Abstract

What drives aggregate fluctuations? I test the granular hypothesis — according to which the largest firms in the economy drive aggregate dynamics — by estimating a dynamic factor model with firm-level data. The growth rate of a firm׳s sales is decomposed in an unobserved common macroeconomic component and in a residual that I interpret as an idiosyncratic firm-level component. The empirical results show that, after properly controlling for aggregate shocks, idiosyncratic shocks have little role in explaining U.S. business cycle fluctuations.

Suggested Citation

  • Stella, Andrea, 2015. "Firm dynamics and the origins of aggregate fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 55(C), pages 71-88.
  • Handle: RePEc:eee:dyncon:v:55:y:2015:i:c:p:71-88
    DOI: 10.1016/j.jedc.2015.03.009
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    More about this item

    Keywords

    Business cycles; Firm dynamics; Granular residual; Dynamic factor models;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D20 - Microeconomics - - Production and Organizations - - - General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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