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Firms and Aggregate Dynamics

Author

Listed:
  • Francesco Franco

    (Faculdade de Economia Universidade Nova de Lisboa)

  • Thomas Philippon

    (Stern School of Business, New York University; CEPR; and NBER)

Abstract

We investigate the role of permanent and transitory shocks for firms and aggregate dynamics. We find that permanent shocks to productivity and permanent shifts in the composition of output explain at least four-fifths of firms' dynamics. However, these permanent shocks are almost uncorrelated across firms and are therefore less relevant for aggregate dynamics. Transitory shocks, on the other hand, are not very important at the firm level, but they account for most of the volatility of aggregate hours and output, because they are significantly correlated across firms. Finally, we try to make some progress on the interpretation of the shocks. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Francesco Franco & Thomas Philippon, 2007. "Firms and Aggregate Dynamics," The Review of Economics and Statistics, MIT Press, vol. 89(4), pages 587-600, November.
    • Handle: RePEc:tpr:restat:v:89:y:2007:i:4:p:587-600
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    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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