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Firm-Specific Shocks and Aggregate Fluctuations

Author

Listed:
  • Leonid Karasik
  • Danny Leung
  • Ben Tomlin

Abstract

In order to understand what drives aggregate fluctuations, many macroeconomic models point to aggregate shocks and discount the contribution of firm-specific shocks. Recent research from other developed countries, however, has found that aggregate fluctuations are in part driven by idiosyncratic shocks to large firms. Using data on Canadian firms, this paper examines the contribution of large firms to industry-level fluctuations in gross output, investment and employment in the manufacturing sector. The data suggest that shocks to large firms can explain as much as 46% and 37% of the fluctuations in gross output and investment, respectively, but do not contribute to fluctuations in employment.

Suggested Citation

  • Leonid Karasik & Danny Leung & Ben Tomlin, 2016. "Firm-Specific Shocks and Aggregate Fluctuations," Staff Working Papers 16-51, Bank of Canada.
    • Handle: RePEc:bca:bocawp:16-51
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    References listed on IDEAS

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    1. Andrew T. Foerster & Pierre-Daniel G. Sarte & Mark W. Watson, 2011. "Sectoral versus Aggregate Shocks: A Structural Factor Analysis of Industrial Production," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 1-38.
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    3. Criscuolo, Chiara & Gal, Peter N. & Menon, Carlo, 2014. "The dynamics of employment growth: new evidence from 18 countries," LSE Research Online Documents on Economics 60286, London School of Economics and Political Science, LSE Library.
    4. Gu, Wulong & Lafrance, Amelie, 2014. "Productivity Growth in the Canadian Broadcasting and Telecommunications Industry: Evidence from Micro Data," Economic Analysis (EA) Research Paper Series 2014089e, Statistics Canada, Analytical Studies Branch.
    5. Rollin, Anne-Marie, 2012. "Firm Dynamics: Employment Dynamics Arising from Firm Growth and Contraction in Canada, 2001 to 2009," The Canadian Economy in Transition 2012024e, Statistics Canada, Economic Analysis Division.
    6. Thomas J. Holmes & John J. Stevens, 2014. "An Alternative Theory of the Plant Size Distribution, with Geography and Intra- and International Trade," Journal of Political Economy, University of Chicago Press, vol. 122(2), pages 369-421.
    7. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," Working Papers 10-17, Center for Economic Studies, U.S. Census Bureau.
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    9. Soderbery, Anson, 2014. "Market size, structure, and access: Trade with capacity constraints," European Economic Review, Elsevier, vol. 70(C), pages 276-298.
    10. Lafrance, Amelie, 2013. "Firm Size and the Risk/Return Trade-off," Economic Analysis (EA) Research Paper Series 2013087e, Statistics Canada, Analytical Studies Branch.
    11. Giuseppe Moscarini & Fabien Postel-Vinay, 2012. "The Contribution of Large and Small Employers to Job Creation in Times of High and Low Unemployment," American Economic Review, American Economic Association, vol. 102(6), pages 2509-2539, October.
    12. Chan, Raymond & Leung, Danny & Rispoli, Luke, 2012. "Small, Medium-sized, and Large Businesses in the Canadian Economy: Measuring Their Contribution to Gross Domestic Product from 2001 to 2008," Economic Analysis (EA) Research Paper Series 2012082e, Statistics Canada, Analytical Studies Branch.
    13. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2013. "Who Creates Jobs? Small versus Large versus Young," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 347-361, May.
    14. Michael Horvath, 1998. "Cyclicality and Sectoral Linkages: Aggregate Fluctuations from Independent Sectoral Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 781-808, October.
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    Cited by:

    1. David Amirault & Naveen Rai & Laurent Martin, 2020. "A Reference Guide for the Business Outlook Survey," Discussion Papers 2020-15, Bank of Canada.
    2. Carlos Melo Gouveia & Cristina Manteu & Sónia Cabral, 2020. "The granularity of Portuguese firm-level exports," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    3. Svetlana Popova, 2019. "Idiosyncratic shocks: estimation and the impact on aggregate fluctuations," Bank of Russia Working Paper Series wps46, Bank of Russia.

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    More about this item

    Keywords

    Business fluctuations and cycles; Firm dynamics; Market structure and pricing;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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