Cross-sectional heterogeneity and the persistence of aggregate fluctuations
It is well known from time series analysis that shocks to aggregate output have very persistent effects. This paper argues that the relation between the expected growth rate of a firm and its size\ provides a microfoundation for such aggregate persistence. The empirical evidence indicates that small firms grow faster than big ones. If this is true, a shock that reallocates units across sizes will be absorbed, yet at very low decreasing rates. Once the shock hits the system, firms are reallocated across sizes. If small firms grows faster than big ones, the shock will then be absorbed. However, fast growing small firms eventually become big and grow as big firms. Thus the number of small firms shrinks over time as well as the rate at which the shock is absorbed. This transmission mechanism reconciles the micro evidence with the observed degree of aggregate persistence. It requires changes in neither the number of firms in the market nor the rate of technological progress. It is merely the result of the cross-sectional heterogeneity that we observe in real economies.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Aghion, Philippe & Saint-Paul, Gilles, 1998. "VIRTUES OF BAD TIMES Interaction Between Productivity Growth and Economic Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 2(03), pages 322-344, September.
- John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 1991.
"Dynamic (S,s) Economies,"
NBER Working Papers
3734, National Bureau of Economic Research, Inc.
- Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989.
"The Growth and Failure of U.S. Manufacturing Plants,"
The Quarterly Journal of Economics,
MIT Press, vol. 104(4), pages 671-98, November.
- Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
- Diebold, Francis X & Senhadji, Abdelhak S, 1996. "The Uncertain Unit Root in Real GNP: Comment," American Economic Review, American Economic Association, vol. 86(5), pages 1291-98, December.
- repec:cup:macdyn:v:2:y:1998:i:3:p:322-44 is not listed on IDEAS
- Gil-Alana, L. A. & Robinson, P. M., 1997. "Testing of unit root and other nonstationary hypotheses in macroeconomic time series," Journal of Econometrics, Elsevier, vol. 80(2), pages 241-268, October.
- Evans, David S., 1986.
"Tests of Alternative Theories of Firm Growth,"
86-36, C.V. Starr Center for Applied Economics, New York University.
- Michelacci, Claudio & Zaffaroni, Paolo, 2000.
"(Fractional) beta convergence,"
Journal of Monetary Economics,
Elsevier, vol. 45(1), pages 129-153, February.
- Claudio Michelacci & Paolo Zaffaroni, 2000. "(Fractional) Beta Convergence," Temi di discussione (Economic working papers) 383, Bank of Italy, Economic Research and International Relations Area.
- Michelacci, C. & Zaffaroni, P., 2000. "(Fractional) Beta Convergence," Papers 383, Banca Italia - Servizio di Studi.
- Michelacci, C. & Zaffaroni, P., 1998. "(Fractional) Beta Convergence," Papers 9803, Centro de Estudios Monetarios Y Financieros-.
- Lewis, Mervyn K. & Mizen, Paul D., 2000. "Monetary Economics," OUP Catalogue, Oxford University Press, number 9780198290629, March.
- Caballero, R.J., 1994.
"Explaining Investment Dynamics in U.S. Manufacturing: Generalized (S,s) Approach,"
94-32, Massachusetts Institute of Technology (MIT), Department of Economics.
- Ricardo J. Caballero & Eduardo M. R. A. Engel, 1999. "Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach," Econometrica, Econometric Society, vol. 67(4), pages 783-826, July.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 1996. "Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach," Documentos de Trabajo 12, Centro de Economía Aplicada, Universidad de Chile.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 1994. "Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach," NBER Working Papers 4887, National Bureau of Economic Research, Inc.
- Caballero, Ricardo J & Engel, Eduardo M R A & Haltiwanger, John, 1997.
"Aggregate Employment Dynamics: Building from Microeconomic Evidence,"
American Economic Review,
American Economic Association, vol. 87(1), pages 115-37, March.
- Ricardo J. Caballero & Eduardo Engel & John Haltiwanger, 1996. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," Documentos de Trabajo 6, Centro de Economía Aplicada, Universidad de Chile.
- Ricardo J. Caballero & Eduardo M.R.A. Engel & John Haltiwanger, 1995. "Aggregate Employment Dynamics: Building From Microeconomic Evidence," NBER Working Papers 5042, National Bureau of Economic Research, Inc.
- Diebold, Francis X. & Rudebusch, Glenn D., 1989.
"Long memory and persistence in aggregate output,"
Journal of Monetary Economics,
Elsevier, vol. 24(2), pages 189-209, September.
- Jones, Charles I, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 495-525, May.
- Ricardo J. Caballero & Mohamad L. Hammour, 1991.
"The Cleansing Effect of Recessions,"
NBER Working Papers
3922, National Bureau of Economic Research, Inc.
- Boyan Jovanovic & Yaw Nyarko, 1994.
"Learning By Doing and the Choice of Technology,"
NBER Working Papers
4739, National Bureau of Economic Research, Inc.
- Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 529-54, July.
- Velasco, Carlos, 2000. "Non-Gaussian Log-Periodogram Regression," Econometric Theory, Cambridge University Press, vol. 16(01), pages 44-79, February.
- Peter Howitt, 1999. "Steady Endogenous Growth with Population and R & D Inputs Growing," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 715-730, August.
- Granger, C. W. J., 1980. "Long memory relationships and the aggregation of dynamic models," Journal of Econometrics, Elsevier, vol. 14(2), pages 227-238, October.
- Dale T. Mortensen & Christopher A. Pissarides, 1998. "Technological Progress, Job Creation and Job Destruction," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 733-753, October.
- Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
- Bertola, G. & Caballero, R.J., 1990.
"Kinked Adjustment Costs And Aggregate Dynamics,"
1990_20, Columbia University, Department of Economics.
- Velasco, Carlos, 1999. "Non-stationary log-periodogram regression," Journal of Econometrics, Elsevier, vol. 91(2), pages 325-371, August.
- repec:cep:stiecm:/1997/323 is not listed on IDEAS
- Jones, Robert & Newman, Geoffrey, 1995. "Adaptive Capital, Information Depreciation and Schumpeterian Growth," Economic Journal, Royal Economic Society, vol. 105(431), pages 897-915, July.
When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:51:y:2004:i:7:p:1321-1352. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.